Given the information in the following table, calculate the risk premium to be earned of optimal portfolio
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Question:
Given the information in the following table, calculate the risk premium to be earned of optimal portfolio using the index model. This is the expected return from the portfolio minus the risk-free rate.
Asset | Expected return (%) | Beta | Residual std dev |
Stock A | 0.18 | 1.9 | 0.22 |
Stock B | 0.11 | 1.1 | 0.14 |
Stock C | 0.09 | 0.7 | 0.115 |
T-bills | 0.03 | 0 | 0 |
Index (market) | 0.1 | ||
Market std deviation | 0.2 |
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