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Use the following information for questions 4 and 5 An investor with $1,000,000 forms an investment portfolio. He invests $200,000 in Stock Q. $300,000 in
Use the following information for questions 4 and 5 An investor with $1,000,000 forms an investment portfolio. He invests $200,000 in Stock Q. $300,000 in Stock R, $150,000 in the risk-free security, and the remaining wealth in the market portfolio. The beta for stock Q is 1.5, and the beta for the investment portfolio is 0.75. The retum on the risk-free rate is 2.50%, and the market portfolio's expected return is 10.80%. 4. What is the expected return for stock Q and stock R ? a. Expected return on Q=12.25%; expected return on R=6.65%. b. Expected return on Q=13.87%; expected return on R=9.75%. c. Expected return on Q=14.95%; expected return on R=5.27%. d. Expected return on Q=14.95%; expected return on R=15.50%. e. None of the above
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