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Imagine an economy that is only made of two stocks and a risk-free security, with the following data. Number of Shares Price Expected Return Std Dev. Stock A 100 $1.50 15% 15% Stock B 150 $2.00 12% 9% You also know that the correlation coefficient between Stock A and Stock B is 1/3, and assume the CAPM holds.

Number of Shares Price Expected Return Std Dev.

Stock A 100 $1.50 15% 15%

Stock B 150 $2.00 12% 9%

a. What are the expected return and standard deviation of the market portfolio?

b. What is the beta of Stock A?

c. What is the risk-free rate?

d. What is the expected return of an efficient portfolio that has the same standard deviation as Stock A? What is its beta?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92678565

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