You currently own $100,000 worth of Wal-Mart stock. Suppose that Wal-Mart has an expected return of 14% and a volatility of 23%. The market portfolio has an expected return of 12% and a volatility of 16%. The risk-free rate is 5%.
1. Assuming the CAPM assumptions hold, what alternative investment has the highest possible expected return while having the same volatility as Wal-Mart?
2. What is the expected return of this portfolio?
(Please answer BOTH questions, please provide formulas, breakdown/step-by-step process AND please don't use excel spreadsheet)
The answer is in below attached image
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