A small market consists of three stocks, A, B, and C. and their financial data and projection are presented below. Assume CAPM holds.
Stock
Number of shares
Stock Price
Beta
A
750
33
1.2
B
220
51
0.8
C
460
19
1.4
Economic condition
Probability
Boom
20%
22%
23%
Normal
50%
15%
10%
12%
Recession
30%
2%
5%
7%
Find:
a) the expected return and standard deviation on this portfolio.
b) the expected return on the market using portfolio beta if Rf=5%.
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