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Assume that the CAPM is valid and that the risk premium on the market portfolio is estimated at 5% with a standard deviation of 25%,
Assume that the CAPM is valid and that the risk premium on the market portfolio is estimated at 5% with a standard deviation of 25%, while the risk free rate is 0.5%. d) Portfolio D has an expected return of 10%. i) What is the beta value of the portfolio? ii) What is the covariance between the market and portfolio D? e) Suppose that portfolio E has an expected return of 7% and a beta value of 1.1. Is this possible if the CAPM is valid? f) Suppose that portfolio F has an expected return of 5.5% and a standard deviation of 30% i) Is this possible if the CAPM is valid? ii) What if the standard deviation is instead 20%? g) An investor performs a portfolio sorting based on the price-earnings ratio. The portfolio with the highest price-earnings ratios has an expected return of 7.5% and a beta value of 1.2, while the portfolio with the lowest price-earnings ratios has an expected return of 14.5%. What should the beta value of this portfolio be if the CAPM is valid
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