The Expected Return for the Market Is 12 Percent, with a Standard

Essay

The expected return for the market is 12 percent, with a standard deviation of 20 percent. The expected risk-free rate is 8 percent. Information is available for three mutual funds, all assumed to be efficient, as follows:
$\begin{array} { c c c } \underline { \text { Stock } } & \underline { \text { Beta } }& \underline { \mathrm { R } _ { \mathrm { i } } ( \% ) } \\1 & 0.8 & 12 \\2 & 1.2 & 13\\3&0.6&11\end{array}$ (a) Based on the CML, calculate the market price of risk.
(b) Calculate the expected return on each of these portfolios.