In the context of CAPM, what is the expected return of security 'j' if it has the following characteristics and if the following information holds for the market portfolio ? Standard Deviation, Security j: 0.20 Standard

Given: Standard Deviation of Security j (σj) = 0.20 Standard Deviation of Market Portfolio (σm) = 0.15 Expected Return of Market Portfolio (Rm) = 0.13 Correlation Coefficient (ρjm) = 0.80 Risk-free Rate of Return (Rf) = 0.07 1. Calculate Beta (βj): βj = (ρjm × σj) / σm βj = (0.80 × 0.20) / 0.15 βj = 0.16 / 0.15 = 1.0667 2. Calculate Expected Return of Security j (Rj) using CAPM: Rj = Rf + βj × (Rm - Rf) Rj = 0.07 + 1.0667 × (0.13 - 0.07) Rj = 0.07 + 1.0667 × 0.06 Rj = 0.07 + 0.064002 Rj ≈ 0.1340 or 13.40%