12:43 Chapter 7 E connect instructions help Portfolio P includes stocks of UK fi

Question

12:43 Chapter 7 E connect instructions help Portfolio P includes stocks of UK firms in a variety of different industries including, among others, Rio Tinto, Aviva and Unilever The expected return of portfolio P is 4.40%. The expected market return is 3.8% and the variance of the returns of the market portfolio is 0.056. The risk free rate is equal to 1.7%. According to the CAPM, how much should the covariance of the returns of portfolio P with the returns of the market portfolio be? (Do not round intermediate calculations. Round your answer to 4 decimal places.) 1.What is the beta of the portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) . How would you characterize it in terms of risk? Defemsive porttlio OAogressive e. If the realized return of the portfolio is 3.2%, would you invest in it if you believe in the validity of the CAPM? References eo& Resources

Explanation / Answer

b. beta of the portfolio = (4.40-3.80)/(3.8-1.7) = 0.29

a. covariance = 0.29*0.056 = 0.0160

c. defensive portfolio

d. no

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