Question
2. There are only two investors and two risky assets (Stock A and B) in the market. The investors are Mr. Black and Mrs. White.
2. There are only two investors and two risky assets (Stock A and B) in the market. The investors are Mr. Black and Mrs. White. Mr. Black invests 6 billion dollars on Stock A, $4 billion on Stock B and $1 billion on risk-free bank deposit while Mrs. White spends $7.5 billion buying stock A, $5 billion buying B and $10 billion on risk-free bank deposit. The returns of A and B are as follows:
The correlation between two returns is 0.
i) What is the market portfolio (of risky assets)?
ii) Suppose the CAPM holds, what is the risk-free return in equilibrium?
iii)What are the numerical equations for the CML and SML of the market?
iv) Draw the diagrams of CML and SML. Do Asset A and B lie on them?
Expected Return % Standard Deviation %Step by Step Solution
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