Assume that you are given the variance/covariance matrix listed below for Securities J and K and...
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Assume that you are given the variance/covariance matrix listed below for Securities J and K and the Market. Now assume that you construct a portfolio by investing 75 percent of your funds in Security J and 25 percent of your funds in Security K. Finally, assume that the risk- free rate is 2 percent and that the risk premium on the market is 5 percent. Based on this information, determine the required rate of return on this portfolio based on both the CAPM model and the Capital Market Line (CML). What is the (absolute) difference in required returns between these two rates? Security K Market J K 0.058569 0.054531 0.029808 0.054531 0.068643 0.046368 Market 0.029808 0.046368 0.033120 0.506% 0.660% 1.240% 1.474% 0.927% Assume that you are given the variance/covariance matrix listed below for Securities J and K and the Market. Now assume that you construct a portfolio by investing 75 percent of your funds in Security J and 25 percent of your funds in Security K. Finally, assume that the risk- free rate is 2 percent and that the risk premium on the market is 5 percent. Based on this information, determine the required rate of return on this portfolio based on both the CAPM model and the Capital Market Line (CML). What is the (absolute) difference in required returns between these two rates? Security K Market J K 0.058569 0.054531 0.029808 0.054531 0.068643 0.046368 Market 0.029808 0.046368 0.033120 0.506% 0.660% 1.240% 1.474% 0.927%
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