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(6 marks) A well-informed, rational investor who is able to diversify her portfolio is considering three different financial assets: J, K, and B. Security J
(6 marks) A well-informed, rational investor who is able to diversify her portfolio is considering three different financial assets: J, K, and B. Security J has an expected return of 11.85% and a beta of 0.9 . Security K has an expected return of 18.85% with a beta of 1.9. Assume that securities J and K are trading at their expected rates of return, in accordance with the Capital Asset Pricing Model. Security B offers a rate of return of 14% with a beta of 1.5 . Using the above information and showing all work: a. Draw the security market line. b. Make sure your axes are well-labelled. c. Label the risk-free rate of return, and the market portfolio on your graph. d. Indicate the placement of Securities J, K and B on your graph. Label their values on the graph
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