1) Suppose a risk free rate is= 4%, the asset return estimate of= 10% and value of standard deviation of estimated return of= 12%.
a) What is the slope of the assets CML (Capital Market Line)?
b) Determine the return from two-asset portfolio yielding 6%? What percentage is in the risk free asset?
c) Compute the risk of a two-asset portfolio yielding 7%? What percentage is in the risk free asset?
2) Suppose a risk free rate of= 4% and market rate of return for the SP500 estimated to be= 10%.
a) Determine the expected return from stock with a beta of 1.5?
b) Determine the expected return from the stock with a beta of 0.5?
c) What occurs to expected return if risk free rate rises, all else equal?
d) What occurs to expected return if market expected return rises, all else equal?