consider the following information tor three stocks, stock A, stock B, and Stock

Question

consider the following information tor three stocks, stock A, stock B, and Stock C. The returns on each of the three stocks are positively correlated, but they are not perfectly correlated. (That is, all of the correlation coefficients are between 0 and 1.) Portfolio P has half of its funds invested in Stock A and half invested in Stock B. Portfolio Q has one third of its funds invested in each of the three stocks. The risk-free rate is b percent, and the market is in equilibrium. (That is, required returns equal expected returns.) What is the market risk premium (kM - kRr)? 4.0% 4.5% 5.0% 5.5% 6.0%

Explanation / Answer

Answer: C

10% =5% + (kM

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