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Question 6 Consider a market that consists of three assets: Expected Asset return A 0.09 B 0.13 C 0.11 and with correlation matrix: 1.0 0.4
Question 6 Consider a market that consists of three assets: Expected Asset return A 0.09 B 0.13 C 0.11 and with correlation matrix: 1.0 0.4 0.2 0.4 1.0 0.3 0.2 0.3 1.0 A. What is the expected return and standard deviation of the market portfolio? B. What is the beta of asset B? C. If Asset B is correctly priced by the CAPM, what is the return on risk free asset? D. If Asset B is correctly priced by the CAPM, is Asset A correctly priced, underpriced, or overpriced? Explain. Standard deviation 0.15 0.20 0.16 Market capitalisation 200 300 500
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