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Suppose you are the manager of an investment fund in a two-parameter economy. Given the following forecast:

a) Would you recommend investment in a security with E(R; ) = .12 and COV(Rj , R„,) = .01? [Note: Assume that this price change has no significant effect on the position of the security market line.]

b) Suppose that in the next period security Ri has earned only 5% over the preceding period. How would you explain this ex post return?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92003055

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