Problem
Katherine Wilson is wondering how much risk she must undertake to generate an acceptable return on her portfolio. The risk-free return currently is 5%. The return on the overall stock market is 16%
Use the CAPM to calculate how high the beta coefficient of Katherine's portfolio would have to be to achieve each of the following expected portfolio returns
• 10%
• 15%
• 18%
• 20%
Katherine is risk averse. What is the highest return she can expect if she is unwilling to take more than an average risk?