The expected return on the market is 15 percent with a standard deviation of 12.5 percent and the risk-free rate is 5 percent.Which of the following portfolios are correctly priced?

A) 1 and 3 only
B) 1 and 4 only
C) 2 and 3 only
D) 3 and 4 only

Question

The expected return on the market is 15 percent with a standard deviation of 12.5 percent and the risk-free rate is 5 percent.Which of the following portfolios are correctly priced?
  
A) 1 and 3 only 
B) 1 and 4 only 
C) 2 and 3 only 
D) 3 and 4 only

Quizplus · Accepted Answer

Market price of risk 11ea8229_34cc_3709_bbd8_215405dbe0bc_TB1726_11 Price of risk for Portfolio 1 11ea8229_34cc_5e1a_bbd8_e16da50122e0_TB1726_11 Price of risk for Portfolio 2 11ea8229_34cc_5e1b_bbd8_3f5019c03c6b_TB1726_11 Price of risk for Portfolio 3 11ea8229_34cc_852c_bbd8_637b26529f44_TB1726_11 Price of risk for Portfolio 4 11ea8229_34cc_852d_bbd8_874da72a6a20_TB1726_11

The Expected Return on the Market Is 15 Percent with a Standard