(Please answer 3 5 with equations and work shown ) 3 You have one million USD and want to create a portfolio equally as risky as the market Given this information, fill in the rest of the following table (15 points) Asset Investment Beta Stock A $195,000 0 90 Stock B $340,000 1 15 Stock C 1 29 Risk free asset 4 Suppose you observe the following situation Security Beta Expected Return Pete Corp 1 15 12 90 Repete Co 0 84 10 20 Assume the two securities are correctly priced Based on CAPM, what is the expected return on the market What is the risk free rate (15 points) 5 Explain the CAPM hint we need to discuss systematic and unsystematic risks, diversification, assumptions CAPM makes, SML line, the model, things CAPM can't explain, etc Everything should be linked with the development of the CAPM (20 points)

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Question: (Please answer 3-5 with equations and work shown!) 3. You have one million USD and want to create a portfolio equally as risky as the

(Please answer 3-5 with equations and work shown!)

3. You have one million USD and want to create a portfolio equally as risky as the market. Given this information, fill in the rest of the following table: (15 points)

Asset	Investment	Beta
Stock A	$195,000	0.90
Stock B	$340,000	1.15
Stock C	?	1.29
Risk-free asset	?	?

4. Suppose you observe the following situation:

Security	Beta	Expected Return
Pete Corp.	1.15	12.90%
Repete Co.	0.84	10.20%

Assume the two securities are correctly priced. Based on CAPM, what is the expected return on the market? What is the risk-free rate? (15 points)

5. Explain the CAPM. [hint: we need to discuss systematic and unsystematic risks, diversification, assumptions CAPM makes, SML line, the model, things CAPM can't explain, etc. Everything should be linked with the development of the CAPM ] (20 points)

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