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Given the following information for the two stocks: Stock Expected Return Standard Deviation Investment Beta 16% 15% 300 10% $30,000 $20,000 0.8 You construct a

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Given the following information for the two stocks: Stock Expected Return Standard Deviation Investment Beta 16% 15% 300 10% $30,000 $20,000 0.8 You construct a portfolio composing of stocks A and B according to the above information. Assume that the risk free rate is 6% and the market risk premium (MRP) is 9%. Use the CAPM analysis to numerically determine whether this 2- stock portfolio is fairly priced? What is your investment recommendation on this portfolio? Why? ?E(Re) = 15.6% vs Required(CAPM) RP= 15.36%>

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