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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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