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Hand in Problem Set 2 Under the CAPM all optimal portfolios lie on the Capital Market Line. The slope of the Capital Market line is

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Hand in Problem Set 2 Under the CAPM all optimal portfolios lie on the Capital Market Line. The slope of the Capital Market line is equal to 0.4=8%/20%. With this we can nd the achievable/optimal expected return for each standard deviation: 1. Candidate Standard Expected Expected Return Deviation Return under CAPM B0 10% 8% 6% Not feasible Optimal Inefficient

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