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The total risk of Portfolios A is 49% 2 , Portfolio B is 64% 2 and Portfolio C is 100% 2 .The market price of

The total risk of Portfolios A is 49%2 , Portfolio B is 64%2 and Portfolio C is 100%2 .The market price of risk is 8%.The Market Portfolio has an expected return of 11% and a total risk of 100%2.You want to form another portfolio Z by investing $7000 in portfolio An and $3000 in portfolio B.

a) What is the standard deviation of Portfolio Z if the correlation coefficient between Portfolio A and Portfolio B is:

1) perfectly positively correlated

2) uncorrelated

b) If the expected return of Portfolio C is 9.4% and it is lying on the Securities Market Line, compute the beta of Portfolio C.

c) Is Portfolio C a Market Portfolio as it has same level of total risk (i.e. 100%2 ) as the Market Portfolio? Explain.

d)You want to borrow $7000 at a risk-free rate. Add in your $10000 in personal savings and you will invest all that money in your Market portfolio. Calculate the expected return and standard deviation of your portfolio.

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