7/17/2019 1_a_3_capm_v2

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Security Market Line (SML) and CAPM

Risk-free rate 2.00%

Stock A Stock B

 Average return 8.00% !.00%

Standard deviation (sigma) of return 0.00% 20.00%

Variance (sigma ^ 2)   0.000 0.0!00

Correlation   0.2000

Covariance of returns 0.0040

Market "ortfo#io M$ a&ii'es te Sar"e ratio P#ease note$ if you cane in"uts* you a+e to re-run s

66.67% Solver onl!" #lease

$ro#ortion of stoc & ''.''%

0.00%

  0.007

0.''%

aret e*cess return over ris+free rate ,.00%

aret #ortfolio ma*imi-es Sar#e ratio/   0. << Need to Max D21 by Changing Cell D13

Matc

n#y n#y Market

Portfo#io consistin of$ Asset A Asset B Mi& Portfo#io,

% in Asset A 00.00% 0.00% 0.00% 66.67%

% in Asset & 0.00% 00.00% 0.00% ''.''%

1*#ected $ortfolio eturn" 3eigted 8.00% !.00% .00% 0.00%

/sin Security Market Line$

Cov (#ortfolio" maret) 0.00,0 0.060 0.020 0.007

&eta (#ortfolio 3it res#ect to maret) 0.700 .000 .20 .0000CAPM (SML)$ &"ected return 1 risk#ess rate (3eta)4(RP) 8.00% !.00% .00% 0.00%

$ro#ortion of stoc A

1*#ected maret #ortfolio return" 1(r )

aret #ortfolio/ return variance

aret #ortfolio/ standard deviation

A B C D E F G H I

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

1819

20

21

22

23

24

25

26

27

28

29

30

31

3233