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You are an investment analyst at an asset management firm. Your colleague, the in-house economist, has analyzed two domestic equity portfolios - TechCo and PowerCo.
You are an investment analyst at an asset management firm. Your colleague, the in-house economist, has analyzed two domestic equity portfolios - TechCo and PowerCo. He provides you with the following statistics: TechCo PowerCo Expected Returns 0.08 0.16 Standard Deviation 0.15 0.30 The correlation between the two portfolios is 0.4. The prevailing risk-free rate is 2%
If the CAPM holds in this world, then what is the weight of PowerCo in the market portfolio?
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