a) The expected rate of return on the market portfolio is 12

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a) The expected rate of return on the market portfolio is 12.50% and the risk-free rate of return is 3.25%. The standard deviation of the market portfolio is 17.50%. What is the representative investor's average degree of risk aversion?

b) Stock A has a beta of 1.95 and a standard deviation of return of 41%. Stock B has a beta of 3.75 and a standard deviation of return of 65%. Assume that you form a portfolio that is 60% invested in Stock A and 40% invested in Stock B. Using the information in question 13, according to CAPM, what is the expected rate of return on your portfolio?

c) Using the information in questions a and b, what is your best estimate of the correlation between stocks A and B? Note that correlation is shown as a number rather than a percentage.