Question: Suppose you have a market with only two stocks, whose details are given below. Shares Outstanding Price per share Expected return St. Dev. Of return

Suppose you have a market with only two stocks, whose details are given below.

Shares Outstanding

Price per share

Expected return

St. Dev. Of return

Stock A

100

$1.50

15%

15%

Stock B

150

$2.00

12%

9%

Correlation between returns of the stocks is given by = 1/3.

a) Find the expected return of the market portfolio.

b) Find the risk of the market portfolio.

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