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Consider a portfolio exhibiting an expected return of 20%

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7. Consider a portfolio exhibiting an expected return of 20% in an economy in which the riskless interest rate is 8%, the expected return to the market portfolio is 13%, and the standard deviation of the return to the market portfolio is .25. Assuming this portfolio is efficient, determine:

a. Its beta
b. The standard deviation of its return
c. Its correlation with the market return.

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SOLUTION:

a. Use the security market line to infer that the beta of this portfolio is 2.4:

.20 = .08 + *(.13 - .08)

* = (.20 - .08)/(.13 - ...

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