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3. Use the following portfolio. Portfolio Investment Beta Standard deviation Stock A $2,000 1.6 22% Stock B $3,000 0.8 12% The risk-free rate is 5%
3. Use the following portfolio. Portfolio Investment Beta Standard deviation Stock A $2,000 1.6 22% Stock B $3,000 0.8 12% The risk-free rate is 5% and the market risk premium (rm - rf) is 9%. a) Find the portfolio's required rate of return. b) If the covariance between two stocks is -105 (%2), what is the portfolio's standard deviation? c) Explain why the portfolio's standard deviation in part b) is lower than individual stocks
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