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Problem $6-10$

You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well$-$diversified portfolios of risky assets:

Portfolio Expected Return Standard Deviation

Q $8\mathrm{.}9\%11\mathrm{.}4\%$

R $10\mathrm{.}913\mathrm{.}0$

S $5\mathrm{.}05\mathrm{.}7$

T $12\mathrm{.}916\mathrm{.}2$

U $7\mathrm{.}56\mathrm{.}8$

For each portfolio, calculate the risk premium per unit of risk that you expect to receive $([$E$($R$)-$ RFR$]/\backslash$sigma $).$ Assume that the risk$-$free rate is $4\mathrm{.}0$ percent. Round your answers to four decimal places.

Q:

R:

S:

T:

U:

Using your computations in Part $($a$),$ explain which of these five portfolios is most likely to be the market portfolio. Round your answer to four decimal places.

Portfolio

$-$Select$-$

has the

$-$Select$-$

ratio of risk premium per unit of risk,

$,$ of these five portfolios so it is most likely the market portfolio.

Choose the correct CML graph.

The correct graph is

$-$Select$-$

$.$

A$.$

B$.$

C$.$

D$.$

If you are only willing to make an investment with $\backslash$sigma $=6\mathrm{.}5\%,$ is it possible for you to earn a return of $6\mathrm{.}5$ percent? Do not round intermediate calculations. Round your answer to one decimal place.

Expected portfolio return:

$\%$

It

$-$Select$-$

possible to earn an expected return of $6\mathrm{.}5\%$ with a portfolio whose standard deviation is $6\mathrm{.}5\%.$

What is the minimum level of risk that would be necessary for an investment to earn $6\mathrm{.}5$ percent? Do not round intermediate calculations. Round your answer to one decimal place.

$\%$

What is the composition of the portfolio along the CML that will generate that expected return? Round your answers to four decimal places.

wMKT:

wrisk$-$free asset:

Suppose you are now willing to make an investment with $\backslash$sigma $=17\mathrm{.}5\%.$ What would be the investment proportions in the riskless asset and the market portfolio for this portfolio? Use a minus sign to enter negative values, if any. Round your answers to four decimal places.

wMKT:

wrisk$-$free asset:

What is the expected return for this portfolio? Round your answer to one decimal place.

$\%$