how much better can you do if you add in the market portfolio in part e 620192
Assume that the market has an expected return of 12% and volatility (risk or standard deviation) of 20%. Suppose the CAPM accurately describes the data one is using. IBM has a 0.90% correlation with the market and 50% volatility. The risk-free rate is 3%.
- What is the covariance between IBM and the market?
- What is IBM”s beta?
- What is the expected return on IBM?
- What percentage of IBM”s total variance risk is specific (nonsystematic)?
- Suppose you want to take only 15% risk on your investment portfolio. What is the best you can do if you invest in only IBM and the risk-free asset?
- How much better can you do if you add in the market portfolio in part e?