Suppose you group all the stocks in the world into mutually exclusive portfolios? (each stock is in only one? portfolio): growth stocks and value stocks. Suppose the two portfolios have equal size? (in terms of total? value), a correlation of 0.50.5?, and the following? characteristics: . The risk? free-rate is 4 %
a. What is the expected return and volatility of the market portfolio? (which is a 50dash–50 combination of the two? portfolios)? b. Calculate the Sharpe ratios of the value? stock, growth? stock, and market portfolio. c. Does the CAPM hold in this? economy? ?(Hint?: Is the market portfolio? efficient?)
a. What is the expected return and volatility of the market portfolio? (which is a 50dash–50 combination of the two? portfolios)? The expected return of the market portfolio is ___?%. ? (Round to one decimal? place.) The volatility of the market portfolio is ____?%. ? (Round to one decimal? place.) b. Calculate the Sharpe ratio of the value stock.
The Sharpe ratio of the value stocks is ____. ? (Round to two decimal? places.) The Sharpe ratio of the growth stocks is ____. ? (Round to two decimal? places.)
The Sharpe ratio of the market portfolio is ___. ? (Round to two decimal? places.)
c. Does the CAPM hold in this? economy? ?(Hint?: Is the market portfolio? efficient?) ? (Select the best choice? below.)
A. The CAPM does not? hold, that? is, the market portfolio is not? efficient, because the market portfolio is not the portfolio with the highest Sharpe ratio.
B. The CAPM does not? hold, that? is, the market portfolio is? efficient, because the market portfolio is not the portfolio with the highest Sharpe ratio.
C. The CAPM? holds, that? is, the market portfolio is? efficient, because the growth portfolio is not the portfolio with the lowest Sharpe ratio.
D. The CAPM? holds, that? is, the market portfolio is not? efficient, because the market portfolio is not the portfolio with the highest Sharpe ratio.