anh49
Mar 16, 2010, 10:23 AM
Security M Security N
Expected return 11% 20%
Standard deviation 9% 14%
Covariance with the market portfolio 0.00512 0.0128
Correlation coefficient between the returns of securities M and N is -0.3. Risk-free rate is 5%. Risk premium of the market portfolio is 6% and market portfolio’s standard deviation is 8%.
a. Calculate the empirical and CAPM-implied beta for each security.
b. Would you long or short securities M and N?
c. Calculate the portfolio weights that must be invested in securities M and N in order to achieve the minimum variance portfolio.
Expected return 11% 20%
Standard deviation 9% 14%
Covariance with the market portfolio 0.00512 0.0128
Correlation coefficient between the returns of securities M and N is -0.3. Risk-free rate is 5%. Risk premium of the market portfolio is 6% and market portfolio’s standard deviation is 8%.
a. Calculate the empirical and CAPM-implied beta for each security.
b. Would you long or short securities M and N?
c. Calculate the portfolio weights that must be invested in securities M and N in order to achieve the minimum variance portfolio.