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2. (5 points) (DD) The expected returns of two portfolios A and B are correctly priced using CAPM. E(RA) = 12%, - , BA =
2. (5 points) (DD) The expected returns of two portfolios A and B are correctly priced using CAPM. E(RA) = 12%, - , BA = 1,5 E(RB) = 7,5%, BB = 0,75 (a) Use the data above to find the expected returns on the market port- folio and the Security Market Line (SML). (b) Derive the equation of the Capital Market Line (CML) given that the variance of the market portfolio is 10%. (C) What is the expected return of an asset with B = 1,2? Assume c further that another asset C exists with E(Rc) = 9,2% and Bc = 1,2. Use the assets A and B to create a zero-investment arbitrage portfolio to take advantage of this opportunity. (d) Use the information you have so far to create an efficient portfolio that gives an expected return of 6%. Calculate the beta value and standard deviation of this portfolio. =
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