The following represents the probability distribution for the rates of return for next month:
|
Probability
|
Pfio P
|
Market M
|
|
1/6
|
-20%
|
-5%
|
|
2/6
|
-5%
|
+5%
|
|
2/6
|
+10%
|
0%
|
|
1/6
|
+50%
|
+10%
|
Compute by hand (and show your work) for all the following questions.
(a) What are the risks and rewards of P and M?
(b) What is the correlation of M and P?
(c) What is the market beta of P?
(d) If you were to hold 1/3 of your portfolio in the risk-free asset, and 2/3 in portfolio P, what would its market beta be?