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You're evaluating investment opportunities currently available, and you have calculated expected returns and standard deviations for five different well- diversified portfolios of risky assets. Throughout
You're evaluating investment opportunities currently available, and you have calculated expected returns and standard deviations for five different well- diversified portfolios of risky assets. Throughout the problem, assume a risk-free rate of 2%. Portfolio Expected Return Standard Deviation Q 9.00% 10.50% R 10.00% 15.00% S 5.60% 11.00% T 11.70% 18.50% U 5.20% 7.50% a) For each portfolio, calculate the risk premium per unit of risk that you expect to receive. Using these computations, explain which of these five portfolios is most likely to be the market portfolio. b) What is the minimum level of risk that would be necessary to earn 7.0%? What is the composition of the portfolio along the CML that will generate that expected return? Show your work in the answer box. You're evaluating investment opportunities currently available, and you have calculated expected returns and standard deviations for five different well- diversified portfolios of risky assets. Throughout the problem, assume a risk-free rate of 2%. Portfolio Expected Return Standard Deviation Q 9.00% 10.50% R 10.00% 15.00% S 5.60% 11.00% T 11.70% 18.50% U 5.20% 7.50% a) For each portfolio, calculate the risk premium per unit of risk that you expect to receive. Using these computations, explain which of these five portfolios is most likely to be the market portfolio. b) What is the minimum level of risk that would be necessary to earn 7.0%? What is the composition of the portfolio along the CML that will generate that expected return? Show your work in the answer box
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