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1. Parts a-c use the following information: Assume there are 2 portfolios. Portfolio A holds just McDonalds and has a beta of 1.1. Portfolio B

1. Parts a-c use the following information: Assume there are 2 portfolios. Portfolio A holds just McDonalds and has a beta of 1.1. Portfolio B holds 100 different stocks and has a beta of 1.1.

a. Which portfolio has a greater standard deviation? Why? Explain

b. Which portfolio has the higher expected return according to CAPM? Explain. Why?

c. Draw the scatterplots of the two portfolios relative to the Standard and Poors 500.

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