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Form an equally weighted portfolio of large and small stocks and compute the Reward-to-Risk Ratio (the slope of the Security Market Line). Annual returns in

Form an equally weighted portfolio of large and small stocks and compute the Reward-to-Risk Ratio (the slope of the Security Market Line).

Annual returns in percent:

Year

Large Company Stocks

Small Company Stocks

S&P500 Index

Treasury Bills

1994

1.32

-3.34

-2.32

4.39

1995

37.58

33.21

13.73

5.61

1996

22.96

16.50

46.94

5.14

1997

33.36

22.36

24.69

5.19

1998

28.58

-2.55

30.54

4.86

1999

21.04

21.26

8.97

4.80

2000

-9.10

-3.02

-2.04

5.98

2001

-11.89

-1.03

-17.26

3.33

2002

-22.10

-21.58

-24.29

1.61

2003

28.89

47.25

32.19

0.94

2004

10.88

18.33

4.43

1.14

2005

4.91

4.55

8.36

2.79

2006

15.79

18.29

12.36

4.97

2007

5.49

7.42

-4.15

4.52

2008

-37.00

-40.54

-38.47

1.24

2009

26.46

43.89

23.49

0.15

2010

15.06

16.91

12.64

0.14

2011

5.53

-1.80

0.00

0.03

2012

7.26

15.91

13.29

0.05

2013

26.50

38.32

29.60

0.07

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Solution Step 1 EXPECTED RETURNSPERCENT SUM OF RETURNS OF LARGE COMPANY21152 Number of Years20 Expec... blur-text-image

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