Suppose the Capital Asset Pricing Model (CAPM) holds. The market premium is 8% and the...
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Suppose the Capital Asset Pricing Model (CAPM) holds. The market premium is 8% and the standard deviation of the market portfolio is 20%. Stock A has a beta of 2 and Stock B has a beta of 1. The diskforarate is 2%. (a) (2 points) Calculate the expected returns of Stock A and Stock B. (b) (4 points) Do we have enough information to calculate the correlation between Stock A and Stock B? Briefly explain. (c) (4 points) Do we have enough information to calculate the correlation between A and B, if they are well-diversified portfolios (i.e., diversifiable risk is negligible) instead of stocks? Briefly explain
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