8-13 CAPM, PORTFOLIO RISK, AND RETURN Consider the following information for three stocks, Stocks X, Y, and Z. The retur

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8 13 Capm Portfolio Risk And Return Consider The Following Information For Three Stocks Stocks X Y And Z The Retur 1 (388.03 KiB) Viewed 10 times

8-13 CAPM, PORTFOLIO RISK, AND RETURN Consider the following information for three stocks, Stocks X, Y, and Z. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock X Y Z Expected Return Xc. d. 9.00% 10.75 12.50 Standard Deviation 15% 15 15 Fund Q has one-third of its funds invested in each of the three stocks. The risk-fre rate is 5.5%, and the market is in equilibrium. (That is, required returns equa expected returns.) doa. What is the market risk premium (TM - FRF)? b. What is the beta of Fund Q? Beta 0.8 1.2 1.6 What is the required return of Fund Q? Would you expect the standard deviation of Fund Q to be less than 15%, equ to 15%, or greater than 15%? Explain