Consider the following table: E (ri) o(ri) BiCAPM Stock A 50% 1.15 Stock B 40% 1.5 Market 8.5% 25% Risk-free 2.5% 0%
(a.) Determine the proportion of firm AAc€?cs total risk that is due to idiosyncratic risk factors.
(b.) Determine the covariance between firm A and firm BAc€?cs returns.
(c.) Determine the covariance between the market portfolioAc€?cs returns and firm BAc€?cs returns.
(d.) Suppose that you have $10,000.00 to invest. You choose to invest $7,500.00 in asset A and $2,500.00 in asset B. Using the CAPM, determine the expected return of this portfolio.