A portfolio manager wants to create a simple portfolio from only two stocks, A and B. The returns for stocks A and B are given by the following equations:

The manager forms a portfolio with market value weights of 40 per cent in stock A and 60 per cent in stock B. What is the sensitivity to the portfolio of a 1 per cent rise in inflation, in basis points?

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R = 0.09-1F INF+ 1F G +, and R = 0.12 +2FF +4Farr +