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Instead of investing in bonds, you are considering investing in stocks. The information for three stocks, Stock A, B and C are given below. The
Instead of investing in bonds, you are considering investing in stocks. The information for three stocks, Stock A, B and C are given below. The returns on the three stocks are positively correlated, but they are not perfectly correlated (i.e., that means each of the correlation coefficient is between 0 and 1 ). Portfolio ABC has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. a) What is the market risk premium ( rMrRF) ? b) What is the beta of Portfolio ABC? c) What is the required return of Portfolio ABC ? d) Would you expect the standard deviation of Portfolio ABC to be less than 15%, equal to 15%, or greater than 15% ? Why
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