Question: The expected standard deviation of market returns is 0.20. Sandra has the following four stocks:
Security Standard Dev. Correlation with the Market
A .30 .70
B .75 .30
C .45 .50
D .50 .16
Compute the beta for each stock.
If the rate on Treasury Bills is 4%, and the equity risk preium is 10%. Use the SML to estimate the return on each of the stocks listed.