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Suppose that all the unrealistic assumptions of the CAPM are true (the CAPM is valid!!). The market portfolio has an expected return equal to 15%

Suppose that all the unrealistic assumptions of the CAPM are true (the CAPM is valid!!). The market portfolio has an expected return equal to 15% and the risk free rate is 5%. We are mainly interested in 2 securities in the market; stocks A and B. The beta of stock A is 1.8 and the expected return of stock B is 10%.

Estimate the expected return of the optimal risky portfolio.

Estimate the alpha of stock A.

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