Assum that CAPM holds. Suppose that the exprected return on the market is 7% in 2017 and the standand deviation of market return in 2017 is 12%. Assume that the covariance of Walmart returns with the mark is .00144 and the covariance of Google return with the market is 0.01512. The standard deviations of Walamrt and Google Stock return are 6% and 20% respectively. The risk-free rate is 1%.
a. Suppose that you can either invest in Walmart and the risk free trasury bills OR invest in Google and the risk free treasury bills, which company will you choose?
b. What proportion of Google's and Walmart's risk (variance) can be diversified away?