Question (20 points): Assume the CAPM holds. You are given the following information on returns on...
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Question (20 points): Assume the CAPM holds. You are given the following information on returns on efficient portoflios: Mean Portfolio 1 0.0982 Portfolio 2 0.2270 Standard Deviation 0.12 0.35 Calculate the return on the risk free rate. Calculate the Sharpe ratio on the market portfolio. Consider an inefficient portfolio with a standard deviation equal to that of Portfolio 1. Will the expected return be higher or lower than the expected return on Portfolio 1, or can you not tell? Explain your answer. Consider the same inefficient portfolio as in (c). Will the on this portfolio be higher or lower than the on Portfolio 1, or can you not tell? Explain your answer. 5922 Question (20 points): Assume the CAPM holds. You are given the following information on returns on efficient portoflios: Mean Portfolio 1 0.0982 Portfolio 2 0.2270 Standard Deviation 0.12 0.35 Calculate the return on the risk free rate. Calculate the Sharpe ratio on the market portfolio. Consider an inefficient portfolio with a standard deviation equal to that of Portfolio 1. Will the expected return be higher or lower than the expected return on Portfolio 1, or can you not tell? Explain your answer. Consider the same inefficient portfolio as in (c). Will the on this portfolio be higher or lower than the on Portfolio 1, or can you not tell? Explain your answer. 5922
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