1. The expected rate of return on the market portfolio is 9.75% and the risk–free rate of return is 1.75%. The standard deviation of the market portfolio is 19%. representative investor’s average degree of risk aversion = 2.22
2. Stock A has a beta of 1.50 and a standard deviation of return of 35%. Stock B has a beta of 3.25 and a standard deviation of return of 60%. Assume that you form a portfolio that is 40% invested in Stock A and 60% invested in Stock B. expected rate of return on your portfolio = 22.15%
The following question is the one that needs to be answered
3. Using the information in questions 1 and 2, what is your best estimate of the correlation between stocks A and B?