1b) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? (For Part B I have uploaded an image that links to this question) c) Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B (bB).
1b) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and
standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the
risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why?
(For Part B I have uploaded an image that links to this question)
c) Assume that using the Security Market Line (SML) the required
to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required
return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B
(bB).
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