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.