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 Post subject: CAPMPosted: Thu, 25 Feb 2010 04:58:43 UTC
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Joined: Sun, 18 Nov 2007 01:49:55 UTC
Posts: 24
Efficient Portfolio 1:
E (R1) = 20%
SD1 = 10%

Efficient Portfolio 2:
E (R2) = 40%
SD2 = 30%

Market Portfolio:
E (Rm) = 25%

Security in a Market:
E(Rs) = 20%
SDs = 30%

Find CORREL of its return and market returns (holding all assumptions of CAPM).

How would you solve this problem? I thought using BETA = (CORREL*SD)/SD would be appropriate but I don't know what the beta value is. I also thought using E(R) = Rf + BETA(E(Rm) - Rf) would also work to find BETA, but I don't know the value of riskfree.

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 Post subject: Posted: Thu, 25 Feb 2010 18:43:39 UTC
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Joined: Wed, 11 Nov 2009 21:45:15 UTC
Posts: 49
What is CORREL? the correlation?

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 Post subject: Posted: Thu, 25 Feb 2010 19:19:33 UTC
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Joined: Sun, 18 Nov 2007 01:49:55 UTC
Posts: 24
yeah it's the correlation

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 Post subject: Posted: Tue, 9 Mar 2010 02:30:11 UTC
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Joined: Sun, 22 Feb 2004 23:09:47 UTC
Posts: 650
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The Capital Allocation Line is a straight line since the risk-free asset has no variance and therefore is not correlated with any other asset. So you do know the risk-free rate.

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