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Consider the table below showing return and risk for two funds. Mutual Funds Returns Standard Deviation Fund A : Well diversified value fund representing the

Consider the table below showing return and risk for two funds.

Mutual Funds

Returns

Standard Deviation

Fund A : Well diversified value fund representing the market portfolio as a risky fund

10%

16%

Fund B: A riskless fund

3.5%

0%

A. Show risk and return for a portfolio consisting of 60 % in risky fund and 40 % riskless fund. Show calculations. Hint: Use CAPM

B. Show return and risk for a portfolio consisting of 130 % in risky fund in the context of CAPM. Show calculations.

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