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Below you have a list of assets that you can buy. The risk-free rate of return is 5% annually. Answer the following questions. E(R) Standard
Below you have a list of assets that you can buy. The risk-free rate of return is 5% annually. Answer the following questions.
E(R) | Standard Deviation | |
Portfolio X | 19% | 30% |
Portfolio Y | 4% | 5% |
Portfolio Z | 15% | 20% |
Portfolio W | 10% | 15% |
a) Among the four portfolios, portfolio Z is likely to be the market portfolio. Explain why.
b) Efficient portfolios are complete portfolios that contain the risk-free asset and the market portfolio. You would like to hold an efficient portfolio from the set of portfolios above, including the T-bill, with a beta equal to 1.75. What is the expected return and the standard deviation of this efficient portfolio?
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