Chapter 11 – Questions 1 – 3 (5 points each)

111. The market has an expected rate of return of 12.8%. The U.S. Treasury bill is expected to yield 3.2%. The inflation rate is 3.1%. What is the market risk premium?

112. Your portfolio consists of 30% U.S. Treasury bills, 30% in mutual fund A, and 40% in stock B. Mutual fund A has market level risk. Stock B has a beta of 1.5. What is the beta of the portfolio?

113. A portfolio has 20% of its funds invested in Security A, 75% of its funds invested in Security B, and 5% invested in the risk free asset. The risk-free asset earns 4%. Security A has an expected return of 8% and a standard deviation of 18%. Security B has an expected return of 10% and a standard deviation of 22%. Securities A and B have a coefficient of correlation of 0.60.

What is the standard deviation of the portfolio?

What is the expected return of the portfolio?