Explanation:
According to the Capital Asset Pricing Model (CAPM): . Given the Risk-free rate () = 5% and Market Risk Premium () = 15%, the Expected Return of the Market Portfolio . For Portfolio Y with a beta of 0.6, the expected return is . Since 14% is less than the market portfolio's expected return of 20%, Statement C is true.
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Q.71 A risk manager at an investment consultancy firm is projecting a return of 14% on Portfolio Y. The market risk premium is 15%, the risk-free rate on interest is 5%, and the volatility of the market portfolio is 18%. Portfolio Y has a beta of 0.6. According to the Capital Asset Pricing Model, which of the following statements is true?
A
The expected return of portfolio Y is more than the expected return of the market portfolio
B
The return of the portfolio has more volatility than the market portfolio
C
The expected return of portfolio Y is less than the expected return of the market portfolio
D
The expected return of portfolio Y is equal to the expected return of the market portfolio
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