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Suppose that securities are priced as if they are traded in a two-parameter economy.

You have forecast the correlation coefficient between the rate of return on Knowlode Mutual Fund and the market portfolio at .8. Your forecast of the standard deviations of the rates of return are .25 for Knowlode, and .20 for the market portfolio.

How would you combine the Knowlode Fund and a riskless security to obtain a portfolio with a volatility (beta) of 1.6?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92003066

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