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Suppose that there are 2 assets with r 1 = 0 . 2 0 , 1 = 0 . 4 0 , r 2 =

Suppose that there are 2 assets with r1=0.20,1=0.40,r2=0.10,2=0.25 and
12=0.005.
(a) If r0=0.02, what are the market portfolio return and variance? What are the corre-
sponding weights (i.e. how much to invest in asset 1, asset 2, and the risk-free asset to
get the market portfolio)? Answer.
(b) If r0=0.05, what are the market portfolio return and variance? What are the corre-
sponding weights? (This is the full question, no other details)
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