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Consider a CAPM economy. The risk free rate (rf) is 4% and the expected market return (rM ) is 10%. (a) Stock 1: =0.90. Compute
Consider a CAPM economy. The risk free rate (rf) is 4% and the expected market return (rM ) is 10%. (a) Stock 1: =0.90. Compute the expected return of stock 1 . (b) Stock 2: =1.1. Compute the expected return of stock 2. (c) Portfolio 1: The proportions invested in stock 1, stock 2, and risk free asset are 30%,30%, and 40%, respectively. Compute the beta and expected return of portfolio 1 . (d) Portfolio 2: The proportions invested in stock 1, stock 2, and risk free asset are 50%,60%, and 10%, respectively. Compute the beta and expected return of portfolio 2 . 2
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