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2. Specify the composition of a portfolio consisting of the CAC 40 and the risk-free asset that will produce an expected return of 10%. Contrast

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2. Specify the composition of a portfolio consisting of the CAC 40 and the risk-free asset that will produce an expected return of 10%. Contrast the risk on this portfolio with the risk of Renault.

The expected rates of return on the French firms Publicis and Renault, the market port- folio (CAC 40) and the risk-free asset are given below, along with the standard deviations of these returns Asset Expected Standard Publicis Renault CAC 40 Risk free asset return 17 10 14 Deviation (%) 40 20 17 1. Assuming that the returns are explained by the capital asset pricing model, specify the betas or Publicis and Renault, and the risk of a portfolio of Publicis and Renault with an expected return the same as the CAC 40

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