7. The expected return on the Market Portfolio M is E(RM)=15%, the standard deviation is OM-25%...

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7. The expected return on the Market Portfolio M is E(RM)=15%, the standard deviation is OM-25% and the risk-free rate is R=5%. a. Suppose that stock X has standard deviation x=30%, and correlation with the market portfolio px=0.5. Compute x and E(Rx) (the beta and the expected return of stock ) according to the Market Model (ie: alpha equals zero under the Market Model). b. Suppose that stock Y has standard deviation y=15%, and correlation with the market portfolio pY=-0.1. Compute y and E(RY) (the beta and the expected return of stock Y) according to the Market Model (ie: alpha equals zero under the Market Model). c. Compute the beta of a portfolio composed 65% of stock X and 35% of stock Y. 7. The expected return on the Market Portfolio M is E(RM)=15%, the standard deviation is OM-25% and the risk-free rate is R=5%. a. Suppose that stock X has standard deviation x=30%, and correlation with the market portfolio px=0.5. Compute x and E(Rx) (the beta and the expected return of stock ) according to the Market Model (ie: alpha equals zero under the Market Model). b. Suppose that stock Y has standard deviation y=15%, and correlation with the market portfolio pY=-0.1. Compute y and E(RY) (the beta and the expected return of stock Y) according to the Market Model (ie: alpha equals zero under the Market Model). c. Compute the beta of a portfolio composed 65% of stock X and 35% of stock Y.

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a To calculate the beta and expected return ERx of Stock X using the market model we can use the fol... View the full answer