Question Details

standard deviation







 .	Security A has an expected return of 12.4% with a standard deviation of 15%, and a correlation with the market of 0.85. Security B has an expected return of -0.73% with a standard deviation of 20%, and a correlation with the market of -0.67.  The standard deviation of rM is 12%.

a.	To someone who acts in accordance with the CAPM, which security is more risky, A or B?  Why?  (Hint:  No calculations are necessary to answer this question; it is easy.)
b.	What are the beta coefficients of A and B?  Calculations are necessary.
c.	If the risk-free rate is 6%, what is the value of rM?






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