The standard deviation of Asset A returns is 36%, while the standard deviation of Asset M...

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The standard deviation of Asset A returns is 36%, while thestandard deviation of Asset M returns in 24%. The correlationbetween Asset A and Asset M returns is 0.4. (a) The average ofAsset A and Asset M’s standard deviations is (36+24)/2 = 30%.Consider a portfolio, P, with 50% of funds in Asset A and 50% offunds in Asset M. Will the standard deviation of portfolio P’sreturns be greater than, equal to, or less than 30%? Explain thisanswer intuitively. (b) What, specifically, will be the standarddeviation of portfolio P returns? (c) Asset M is in fact the“market” portfolio. What is the Beta coefficient for Asset M? ForAsset A? For Portfolio P? (d) Assume that the CAPM holds, that therisk free interest rate is 4% and that the expected return on themarket is 9.5%. What is the expected return on Asset A? Onportfolio P?

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aConsider a portfolio P with 50 of funds in Asset A and 50 of funds in Asset MThe standard deviation of portfolio Ps returns will be less than 30 If w1 w2 w3 wn are weight in the portfolio for assets 1 23 n Thenw1w2w3wn1 S1 S2 S3Sn are the standard See Answer

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The standard deviation of Asset A returns is 36%, while thestandard deviation of Asset M returns in 24%. The correlationbetween Asset A and Asset M returns is 0.4. (a) The average ofAsset A and Asset M’s standard deviations is (36+24)/2 = 30%.Consider a portfolio, P, with 50% of funds in Asset A and 50% offunds in Asset M. Will the standard deviation of portfolio P’sreturns be greater than, equal to, or less than 30%? Explain thisanswer intuitively. (b) What, specifically, will be the standarddeviation of portfolio P returns? (c) Asset M is in fact the“market” portfolio. What is the Beta coefficient for Asset M? ForAsset A? For Portfolio P? (d) Assume that the CAPM holds, that therisk free interest rate is 4% and that the expected return on themarket is 9.5%. What is the expected return on Asset A? Onportfolio P?