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7. The expected return on stocks is 20%, with a standard deviation of 25%. The expected return on silver is 10%, with a standard deviation
7. The expected return on stocks is 20%, with a standard deviation of 25%. The expected return on silver is 10%, with a standard deviation of 30%. (a) Silver has a lower expected return and a higher standard deviation of returns. Would anyone choose to hold silver in their portfolio? Explain. (b) Suppose that we make an additional assumption: The correlation coefficient between stocks and silver is 1. Would anyone choose to hold silver in their portfolio? Explain. (c) Under the assumption made in part (b), and with the data above on expected returns and standard deviations, could the market possibly be in equilibrium? Explain
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