2 Part Question. Consider a portfolio of two stocks. You invest $4000 in stock A...
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2 Part Question. Consider a portfolio of two stocks. You invest $4000 in stock A and $6000 in stock B. Stock A has a beta of 1.5. Stock B has the same systematic risk as the market. Using historical data, you have estimated that A=25%, B=15%, and AB=0.8. The risk free rate is 4%, and the expected market risk premium is 8%.
Part 1. Calculate the CAPM expected returns for stock A and stock B
Part 2. Calculate the portfolio expected return and standard deviation
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