Aportfolio that combines the risk-free asset and the market portfolio has an expected return of 6.9 percent and a standard deviation of 9.9 percent. the risk-free rate is 3.9 percent, and the expected return on the market portfolio is 11.9 percent. assume the capital asset pricing model holds. what expected rate of return would a security earn if it had a .44 correlation with the market portfolio and a standard deviation of 54.9 percent? (do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

11.22%

Explanation:

We need beta coefficient of the security to determine the expected return.

beta = (correlation × standard deviation) ÷ market standard deviation

The share of risk free asset is =

(the market portfolio - portfolio of expected return) ÷ (the market portfolio - risk-free rate)

The share of risk free asset is = (11.9 - 6.9)% ÷ (11.9 - 3.9)%

The share of risk free asset is = 0.625.

As the portfolio has a standard deviation of 9.9%, the standard deviation of market value = Standard deviation ÷ (1 - the share of risk free asset)

The market standard deviation = 9.9% ÷ (1 - 0.625)

The market standard deviation = 26.4%

As we get all the values for beta, we now input the values -

beta = (0.44 × 54.9%) ÷ 26.4%

beta = 0.915

Now we will use Capital asset pricing model to determine the expected return

expected return = Risk free return + (expected market return - risk free return) × beta

expected return = 3.9% + (11.9% - 3.9%) × 0.915

expected return = 3.9% + 7.32%

expected return = 11.22%

if you use only 25 for your entertainment and only 200 for the groceries that you really need and take out the 50 per month for the computer then that should be enough

the answer is a. $209,000