CAS Exam 9 Spring 2015, Question 5
Study guide: Exam 9
Given the following information:
| Market Portfolio | Market's Zero-Beta Portfolio | Minimum-Variance Portfolio | |
|---|---|---|---|
| E(r) | 8% | Not Given | 6% |
| σ | 14% | 14% | 10% |
- The risk-free rate is 3%.
- The covariance of Security A and the market portfolio is 0.0392.
- The minimum-variance frontier is symmetric around the minimum-variance portfolio.
Part a (1 point)
Calculate the expected return for Security A using the zero-beta extension of CAPM.
Part b (0.25 points)
Identify the assumption that is relaxed under the zero-beta extension of CAPM.
Part c (0.25 points)
State the correlation between the market portfolio and the market's zero-beta portfolio.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution