Question
After hearing from Williams,Mr.Fox has decided not to use the Nikkei 225 index but to build a portfolio using only US T-bills and the S&P
After hearing from Williams,Mr.Fox has decided not to use the Nikkei 225 index but to build a portfolio using only US T-bills and the S&P 500 index.Suppose Mr.Fox can trade freely with the T-bills and of the S&P 500 Index.The T-bills have a return of 5 percent.The S&P 500 has a standard 20 percent and an expected return of 15 percent.
a. What is the equation for the Capital Market Line(CML)?Draw the CML and mark the points investment in the market portlolio (approximately)where the investment in the market portfolio is 25 percent and 75 percent
b. What is the exact risk and return at each of the two points mentioned above?
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