2. The following table shows the return on Asset A and the market index. The beta of Asset A is 0.6. a. Assume the risk free rate is 5%. Using the

2. The following table shows the return on Asset A and the market index. The beta of Asset A is 0.6.

a. Assume the risk free rate is 5%. Using the CAPM model what is the expected return of Asset A?

b. Compute return per unit risk for asset A and the market. How do you think Asset A has performed compared to the market?

c. If you invest all your money in Asset A, what would be a good measure of risk that you are taking on?

d. Now suppose you invest half of your money in Asset A and half of your money in the market. What would be the expected return and standard deviation on your portfolio?

e. Are you better off by diversifying or worse off compared to the scenario in part c above? Explain.

(100 - 150 words)