Problem
Katherine Wilson is wondering how much risk she must undertake to generate an acceptable return on her portfolio. The risk-free return currently is 5%. The return on the overall stock market is 16%. Use the CAPM to calculate how high the beta coefficient of Katherine's portfolio would have to be to achieves each of the following expected portfolio returns.
i. 10%
ii. 15%
iii. 18%
iv. 20%
v. Katherine is risk averse
What is the highest return she can expect if she is unwilling to take more than an average risk?