Consider the following assets: E(r) Asset A Market portfolio, M Risk-free asset SD Beta 30% 1...

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Consider the following assets: E(r) Asset A Market portfolio, M Risk-free asset SD Beta 30% 1 8% 15% 2% Currently all your client's funds are invested in stock A. a) Currently, your portfolio contains only Asset A (basically a "don't-make-any-financial-sense portfolio"). Assume that CAPM holds. Show with calculations how you can come up with a new portfolio that would improve your investment return while keeping your risk level the same as now. [Hint: Think about what calculations you need to do to answer the question.] (7 marks) b) Draw the capital market line (CML) and show the position of stock A. (3 marks) Consider the following assets: E(r) Asset A Market portfolio, M Risk-free asset SD Beta 30% 1 8% 15% 2% Currently all your client's funds are invested in stock A. a) Currently, your portfolio contains only Asset A (basically a "don't-make-any-financial-sense portfolio"). Assume that CAPM holds. Show with calculations how you can come up with a new portfolio that would improve your investment return while keeping your risk level the same as now. [Hint: Think about what calculations you need to do to answer the question.] (7 marks) b) Draw the capital market line (CML) and show the position of stock A. (3 marks)

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a Er 8 215 12 b CML Er Rf BetaErm Rf Er 2 158 2 Er 12 Explanation The CML equation is ... View the full answer