Assume the riskless rate of interest is 2% per year, and the expected rate of return on the market portfolio is 8% per year. According to the CAPM, what is the efficient way for an investor to achieve an expected rate of return of 5% per year? If the standard deviation of the rate of return on the market portfolio is 4%, what is the standard deviation of the portfolio producing the 5% expected return?
Assume the riskless rate of interest is 2% per year, and the expected
• Plot the CML and locate the foregoing portfolios on the same graph.
• Plot the SML and locate the foregoing portfolios on the same graph.
The expected return is the profit margin or loss that an investment may anticipate by the investor. The formula to calculate the expected return(ER) is :
The square root of the variance of a random variable, sample, statistical population, data collection, or probability distribution is its standard deviation. The formula to calculate the standard deviation (SD) is :
Step by step
Solved in 2 steps
