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Suppose there are N risky assets and one risk free asset. Every investor can borrow or lend freely at the risk-free asset. Suppose further that every investor has homogeneous expectation on stock returns. In this case, explain briefly why the tangency portfolio should be the market portfolio. Market portfolio is defined as the weighted average of individual stock returns. The weight of each stock in this portfolio is defined as the market capitalization of the firm over the total market capitalization of all stocks.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92742928

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