The following represents the probability distribution for the rates of return for next month: Probability Pfio P
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The following represents the probability distribution for the rates of return for next month:
Probability Pfio P Market M 1/6 −20% −5%
2/6 −5% +5%
2/6 +10% 0%
1/6 +50% +10%
Compute by hand (and show your work) for all the following questions.
(a) What are the risks and rewards of P and M?
(b) What is the correlation of M and P?
(c) What is the market beta of P?
(d) If you were to hold 1/3 of your portfolio in the risk-free asset, and 2/3 in portfolio P, what would its market beta be?
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