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Stock UTD has a beta of 1.5 and an expected return of 12.5%. Stock SMU has an expected return 15%. The risk free-rate is 5%.

Stock UTD has a beta of 1.5 and an expected return of 12.5%. Stock SMU has an expected return 15%. The risk free-rate is 5%.

a. What is the risk premium on the market portfolio?

b. What is the beta of Stock SMU?

c. You have $5000 to invest in a portfolio consisting of the risk free asset and/or Stock SMU. What is the expected return if you (1) borrow $1500 by selling short the risk free asset, and (2) invest the proceeds from short sale, plus your $5000 in Stock SMU.

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