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you are interested in making investment in S and B. The risk-free rate of return is 6% and the market risk premium is 7%. The

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you are interested in making investment in S and B. The risk-free rate of return is 6% and the market risk premium is 7%. The expected return of S is 25%, the expected return of B is 20 %. The standard deviation of Sis 9.22% and the standard deviation of B is 5% States S 25% 22 3 4 Probabilities 0.4 033 0.2 0.1 35% 15% 15% B 15% 20% 25% 30% Required: (You should enter at least the last step of your calculations on the system) 1- Compute and analyze the correlation between Sand Bround your answer to 2 decimals (4 Marks) 2. If you would like to create minimum variance portfolio, how much weight you will allocate to Sand B? (2 Marks) 3. Compute the expected retum and risk of the minimum variance portfolio (2 Marks) 4- How do you call the curve representing all the possible combinations between Sand B? S- Explain with you own words how to draw this graph? If you would like to create the optimal portfolio 6- Explain with your own words how to find out graphically the optimal portfolio (1 Mark) 7- Compute how much weight you will allocate to S and B in the optimal portfolio (2 Marks) 8. Compute the expected retum and risk of the optimal portfolio (2 Marks) The beta of the stock S is 0.5 while the beta of the stock B is 2: 9. Indicate for each stock Sand B whether it's overpriced, under-priced or fairty priced and explain the reason (2 Marks)

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