Problem 1
If the risk-free rate of return is 6%, and if a risky asset is available with a return of 9% and a standard deviation of 3%, what is the maximum rate of return you can achieve if you are willing to accept a standard deviation of 2%? What percentage of your wealth would have to be invested in the risky asset?
Problem 3
If a stock has a \(\beta\) of \(1.5,\) the return on the market is \(10 \%,\) and the riskfree rate of return is \(5 \%,\) what expected rate of return should this stock offer according to the Capital Asset Pricing Model? If the expected value of the stock is \(\$ 100,\) what price should the stock be selling for today?
