Stock A has expected return of 15% and standard deviation (s.d.) 20%.  Stock  B  has  expected  return  20%  and  s.d.  15%.  The  two  stocks  have  a  correlation coefficient of 0.5.  a. Note that Stock A has greater risk (s.d.) that Stock B, but a lower expected return. Explain how is this possible in a world where returns on assets are as predicted by the CAPM.        The beta of stock A is 1 and the beta of stock B is 1.5. What is the risk premium on the market portfolio, if the CAPM holds ?

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