Results 1 to 3 of 3

Math Help - Capm

  1. #1
    Member
    Joined
    Nov 2007
    Posts
    232

    Capm

    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.
    Follow Math Help Forum on Facebook and Google+

  2. #2
    Junior Member
    Joined
    Jan 2010
    Posts
    65
    Quote Originally Posted by Macleef View Post
    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.
    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?

    It is also true that
    \beta_1=Corr(R_1,R_M)*\frac{\sigma_1}{\sigma_M}
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Member
    Joined
    Nov 2007
    Posts
    232
    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
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. CAPM, finding if a stock is over or under priced
    Posted in the Business Math Forum
    Replies: 0
    Last Post: April 16th 2010, 08:44 PM

Search Tags


/mathhelpforum @mathhelpforum