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Let P* be a hypothetical portfolio that combines P with the risk-free asset until we obtain the same volatility as the market. Show that: rp*
Let P* be a hypothetical portfolio that combines P with the risk-free asset until we obtain the same volatility as the market. Show that: rp* = rf + M [ rp-rf/ p ] where rP* = return on the hypothetical portfolio P*, rp = return on the actual portfolio P, rf = risk-free rate, M = standard deviation of the market portfolio, and P = standard deviation of the actual portfolio P.
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