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The Treasury bill rate is 2% and the expected return on the market portfolio is 10%. The standard deviation of the return on the market
The Treasury bill rate is 2% and the expected return on the market portfolio is 10%. The standard deviation of the return on the market portfolio is 20%.
Stock A has an expected return of 17% and a volatility of 55%. Assume that the stock is correctly priced according to the CAPM.
What portfolio P, combining the market portfolio and the risk-free asset, has exactly the same beta as Stock A? (You have to find the weight on the market portfolio, and the weight on the risk-free asset, such that your portfolio beta is equal to the beta of Stock A.
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