Stock BFC has an actual return of 14%. Its covariance with the market return is 0.15 and
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Question:
Stock BFC has an actual return of 14%. Its covariance with the market return is 0.15 and the market variance is 0.10. The market return is 12% and the Rf is 5%.
Explain whether investors should buy or sell / short-sell stock BFC and why. Show all workings. Also explain why the CML cannot be used in this setting.
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