Suppose that the market risk premium is 5% and the risk-free rate is 4%. Risky assets A and B are perfectly negatively correlated. Asset A has a standard deviation of returns of 40%, while asset B has a standard deviation of returns of 60%. According to the CAPM, what should be the expected return of a zero variance portfolio constructed of assets A and B? O 5% O 3% O Cannot be determined O 4% O 2%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Suppose that the market risk premium is 5% and the risk-free rate is 4%. Risky assets A and B are
perfectly negatively correlated. Asset A has a standard deviation of returns of 40%, while asset B has
a standard deviation of returns of 60%. According to the CAPM, what should be the expected return
of a zero variance portfolio constructed of assets A and B?
O 5%
Ⓒ3%
O Cannot be determined
O 4%
O 2%
Transcribed Image Text:Suppose that the market risk premium is 5% and the risk-free rate is 4%. Risky assets A and B are perfectly negatively correlated. Asset A has a standard deviation of returns of 40%, while asset B has a standard deviation of returns of 60%. According to the CAPM, what should be the expected return of a zero variance portfolio constructed of assets A and B? O 5% Ⓒ3% O Cannot be determined O 4% O 2%
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