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16. Suppose you are provided with the following information on stock A, stock B and the market portfolio. Returns of both stock A and B
16. Suppose you are provided with the following information on stock A, stock B and the market portfolio. Returns of both stock A and B are on the Security Market Line. Expected Return Standard Deviation 0.20 Stock A Stock B Market 0.17 0.20 Unknown Correlation With Stock A Stock B Market 1.00 0.50 0.42 0.50 1.00 0.35 0.42 0.35 1.00 0.30 0.07 a) Based on the above information, calculate the return on market portfolio and risk-free interest rate. b) Write the equation for the capital market line and the equation for the security market line in this economy. c) Suppose your friend invests 25% of her fund in stock A and the rest in stock B. Calculate the expected return, standard deviation, and the beta of this portfolio
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