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Given the scenario:
Answer the questions 3, 4 and 5.

3. Adding a Riskless Cash Fund: Suppose now that a riskless cash fund P₀ is also available to invest in. The risk free rate is 0.04 for both lending and borrowing. Obtain Hypatia's new allocation of her inheritance to the (now) six funds. State clearly investment in the riskless cash fund and describe in detail the tangency portfolio.

4. The Capital Market Line: Make a new μσ-plane graph showing the riskless cash fund, tangency portfolio, Hypatia's new optimal portfolio and the Capital Market Line relative to the risky efficient frontier. If the five original funds have a net worth of $100 million, estimate (to the nearest $0.1 million) the total value of each fund.

5. The Security Market Line: Compute the β's of all relevant funds and assets in this project and clearly display them on the Security Market Line. Comment on the result.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92006805

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