Problem: Your investment portfolio consists of $15,000 invested in one one stock - Microsoft. Suppose the risk-free rate is 5%. Microsoft stock has an expeted return of 12% and a volatility of 40%, and the market portfolio has an expected return of 10% and a volatility of 18%. Under the CAPM assumptions:
Q1. What alternative investment has the lowest possible volatilty while having the same expected return as Microsoft?
Q2. What investment has the highest possible expected return while having the same volatility as Microsoft?