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Let ( i , i ) for i = 1 , 2 ,...,n be the volatilities and expected returns of n risky investments. The expected
- Let (i,i) for i = 1,2,...,n be the volatilities and expected returns of n risky investments. The expected return and volatility of the market portfolio are M = 4% p.a. and M = 18% p.a., respectively. The efficient frontier (for the risky investments) is given by the equation
2 = 562 2.24 + 0.0324.
Note that this equation is satisfied when = 0.18 and = 0.04 (the market portfolio).
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- Find the risk-free rate of interest with annual compounding.
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- Find the equation for the Capital Market Line (an equation of the form = a+b). (Round the coefficients to 6 decimals.)
- Let P be the portfolio consisting of 10% of the risk-free investment and 90% of the market portfolio. Find the expected return and volatility.
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