The Alumina Corporation has the following simplified balance sheet (based on market values)
a. The debt of Alumina, being risk-free, earns the risk-free return of 6 percent per year. The equity of Alumina has a mean return of 12 percent per year, a standard deviation of 30 percent per year, and a beta of .9. Compute the mean return, beta, and standard deviation of the assets of Alumina.
b. If the CAPM holds, what is the mean return of the market portfolio?
c. How does your answer to part a change if the debt is risky, has returns with a mean of 7 percent, has a standard deviation of 10 percent, a beta of .2, and has a correlation of .3 with the return of the common stock of Alumina?