What must be the price of riskless asset and its pay off in case? You are a clie

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What must be the price of riskless asset and its pay off in case? You are a client of Efficient Portfolios, Inc., a firm that designs efficient portfolios under the assumption that CAPM holds. Their research department currently estimates the return on the market to be 10%, and the risk free return to be 5%. Based on this information and your preferred risk-return tradeoff, they identify for you a mean-variance efficient portfolio with an expected return and standard deviation of return of 15% and 24% respectively. What value for the variance of return for the market portfolio is implicit in the efficient portfolio above? Show all work! At your request, Efficient Portfolios have also provided you with a valuation for one of the securities in your portfolio. Their best estimate of the price of the stock at the end of the year is $75, paying an expected dividend of $4.50 at the end of that period. The stock's standard deviation of expected return is 20% and it has a correlation with the market portfolio of 0.40. Based on this information, at what price should the stock be currently selling? Explain and show all work.

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What must be the price of riskless asset and its pay off in case? You are a clie

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