Efficient Portfolio 1:
E (R1) = 20%
SD1 = 10%
Efficient Portfolio 2:
E (R2) = 40%
SD2 = 30%
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.
What do you mean of find the CORR of "its" return. Can you be more specific to what "it" is? Are you invested in all of these portfolios? Do you know the portfolio weights?
Originally Posted by Macleef
It is also true that
finding the correlation of the security's return and the market returns
portfolio weights are not given
I think I would be able to find the correlation if I knew the market's SD.
I'm suppose to use the CML equation, but I don't really see how that is helpful to find correlation...unless I also use SML also...and I still don't know how to plug in the numbers into these equations