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(a) Assume all investors want to hold a portfolio that, for a given level of volatility, has the maximum possible expected return. Explain why, when

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(a) Assume all investors want to hold a portfolio that, for a given level of volatility, has the maximum possible expected return. Explain why, when a risk-free asset exists, all investors will choose to hold the same portfolio of risky stocks. (3 marks) (b) Briefly discuss why a risky portfolio that lies on the Security Market Line (SML) may not necessarily lie on the Capital Market Line (CML)

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