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Question: Assume that the CAPM holds. A portfolio P that combines the risk-free asset and the market portfolio has an expected return of 14% and a return standard deviation of 18%. The risk-free rate is 5%, and the expected return on the market portfolio is 17%. Consider a security Z. What expected rate of return would you expect Z to earn if it had a 0.40 correlation with the market portfolio and a standard deviation of 36%? Comment on the market risk associated with security Z.

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