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Question 5.17: Suppose that the returns KV on a given portfolio and KM on t...

Suppose that the returns K_V on a given portfolio and K_M on the market portfolio take the following values in different market scenarios:

Scenario Probability Return K_V Return K_M
ω_{1} 0.1 −5% 10%
ω_2 0.3 0% 14%
ω_3 0.4 2% 12%
ω_3 0.2 4% 16%

Compute the gradient β_V and intercept α_V of the line of best fit.

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β_V≅0.857, α_V≅−0.102.

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