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You have been provided with the following data on the securities of two firms (firm D and firm G), the market portfolio and the risk-free

You have been provided with the following data on the securities of two firms (firm D and firm G), the market portfolio and the risk-free asset:

Security

ri

i

iM

i

D

0.18

X1

0.25

0.80

G

X2

0.29

0.40

X4

Market

0.14

0.12

X3

1.00

Risk-free asset

0.03

X6

0.00

X5

where ri is the average realized return of asset i in the recent past (equal to its expected return today), i is the standard deviation of asset i's returns, iM is the correlation of asset i's returns with the market returns and i is the beta of asset i. Assume the CAPM holds true.

Provide an evaluation of the investment performance for stock D and make a justified investment recommendation.

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