Question
If the correlation coefficient on a stock is perfectly positively correlated, p = +1.0, is diversification working?Yes or No point If the correlation coefficient on
If the correlation coefficient on a stock is perfectly positively correlated, p = +1.0, is diversification working?Yes or No point
If the correlation coefficient on a stock is perfectly negatively correlated, p = -1.0, is diversification working?Yes or No point
Assume you are the manager of an investment fund worth $25,000,000 which consists of the following five stocks with their beta coefficients.
Stock A$5,000,0000.5 beta
Stock B$6,000,0001.0 beta
Stock C$4,000,0001.4 beta
Stock D$7,000,0002.0 beta
Stock E$3,000,0002.5 beta
If the market's required rate of return is 12%, rm, and the risk free rate, rRF, is 4%, what is this fund's required rate of return, r. First calculate the fund's beta below.Then use the SML equation to calculate the fund's required rate of return, r.
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