The expected return for the market is 12 percent, with a standard deviation of 20 percent. The expected risk-free rate is 8 percent. Information is available for three mutual funds, all assumed to be efficient, as follows:
$\begin{array} { c c c }
\underline { \text { Stock } } & \underline { \text { Beta } }& \underline { \mathrm { R } _ { \mathrm { i } } ( \% ) } \
1 & 0.8 & 12 \
2 & 1.2 & 13\
3&0.6&11
\end{array}$ (a) Based on the CML, calculate the market price of risk.
(b) Calculate the expected return on each of these portfolios.

Question

The expected return for the market is 12 percent, with a standard deviation of 20 percent. The expected risk-free rate is 8 percent. Information is available for three mutual funds, all assumed to be efficient, as follows:
 $\begin{array} { c c c } 
\underline { \text { Stock } }  & \underline { \text { Beta } }& \underline { \mathrm { R } _ { \mathrm { i } } ( \% ) } \
1 & 0.8 & 12 \
2 & 1.2 & 13\
3&0.6&11
\end{array}$ (a) Based on the CML, calculate the market price of risk.
(b) Calculate the expected return on each of these portfolios.

Quizplus · Accepted Answer

The Answer of The expected return for the market is 12 percent, with a standard deviation of 20 percent. The expected risk-free rate is 8 percent. Information is available for three mutual funds, all assumed to be efficient, as follows:
 $\begin{array} { c c c } 
\underline { \text { Stock } }  & \underline { \text { Beta } }& \underline { \mathrm { R } _ { \mathrm { i } } ( \% ) } \
1 & 0.8 & 12 \
2 & 1.2 & 13\
3&0.6&11
\end{array}$ (a) Based on the CML, calculate the market price of risk.
(b) Calculate the expected return on each of these portfolios.

The Expected Return for the Market Is 12 Percent, with a Standard