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Assuming a standard deviation of the market of 20 what is

1. Suppose that the market consists of two stocks A and B. In the market there are 100 shares of A and 100 shares of B traded. The price of A is currently $1 per share, and the price of B is $2. Let the risk free rate be 2%.

a. If the expected returns of stock A is 10%, and B is 6%, what is the expected return of the market?

b. Assuming CAPM holds, what is the beta of stock A and the beta of stock B?

c. Assuming a standard deviation of the market of 20%, what is the covariance between stock A and the market?

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Finance Basics: Assuming a standard deviation of the market of 20 what is

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