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Assume that stocks in this economy are priced according to CAPM. You are holding a portfolio of stocks where the beta of your portfolio is 1.5 and its correlation with the market portfolio is 0.75. The risk-free rate is 5%, the expected market return is 10%, and the standard deviation of the market return is 15%.

a. Is your current portfolio efficient? Explain.

b. How much additional expected return can you earn (without increase in total risk) if you make your portfolio efficient.

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Financial Management, Finance

Category:- Financial Management
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