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The market risk premium is 6% and the risk free rate is 2%. An investor's existing portfolio of stocks has a beta of +1.3 and

The market risk premium is 6% and the risk free rate is 2%. An investor's existing portfolio of stocks has a beta of +1.3 and an expected return of +9.8%. The investor is considering adding a gold ETF to her portfolio, which has a beta of -0.8 and an expected return of -2%. The investor decides to allocate 70% of her funds to her existing portfolio and 30% to the gold ETF. Calculate the investor's Treynor measure before and after the allocation to the gold ETF and explain why the Treynor measure increases, despite the fact that the gold ETF has a negative expected return.

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