You have observed two stocks Microsoft and General Mills for years. The expected returns are...
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You have observed two stocks Microsoft and General Mills for years. The expected returns are 21% and 13%, while the Betas are 2.0 and 0.5, respectively for the two stocks. 1) If CAPM is valid and both stocks have zero Alpha (abnormal return), what would be the expected return of the stock market? (Hint: 2 equations 2 unknown variables)
2) If you are constructing a portfolio of $100,000 using the two stocks and your goal is to have a portfolio beta 1.8, how much money would you invest on Microsoft?
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