(a) Suppose the single-factor CAPM holds exactly. The expected return of the market portfolio is...
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(a) Suppose the single-factor CAPM holds exactly. The expected return of the market portfolio is 25% and the risk-free rate is 5%. The standard deviation is 50% on the market portfolio. Your target rate of return is 30%. Explain how this can be achieved. Draw the relevant CML graph as part of your answer. (b) Is the Sharpe ratio a good guide for investors to use as a guide for stock-picking? Explain your answer.
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