There are only two risky assets in the economy, A and B. The market portfolio in...

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There are only two risky assets in the economy, A and B. The market portfolio in an economy has an expected market return of 91% and variance of 37/1200≈ 0.0308. The risk-free rate in the economy is 3%. Stock A has an expected return of 5% and volatility of 10%. Stock B has an expected return of 10% and volatility of 20%. The correlation of returns on stocks A and B is 50%. All investors have mean-variance utility functions, U = - (p indicates the portfolio they are holding). a) Find the optimal portfolio composition for an investor Y with risk-aversion coefficient Make sure you identify the weights of stocks A and B. b) You decide to invest in a portfolio (P) composed of two stocks A and B. Your portfolio is invested 50% in stock A and 50% in stock B. What is your portfolio's: i) Expected return ii) Volatility iii) Sharpe ratio iv) Beta v) Unexplained return (Jensen's alpha) by CAPM vi) Is your portfolio on the Capital Market Line (CML)? Is it on the Security Market Line (SML)? There are only two risky assets in the economy, A and B. The market portfolio in an economy has an expected market return of 91% and variance of 37/1200≈ 0.0308. The risk-free rate in the economy is 3%. Stock A has an expected return of 5% and volatility of 10%. Stock B has an expected return of 10% and volatility of 20%. The correlation of returns on stocks A and B is 50%. All investors have mean-variance utility functions, U = - (p indicates the portfolio they are holding). a) Find the optimal portfolio composition for an investor Y with risk-aversion coefficient Make sure you identify the weights of stocks A and B. b) You decide to invest in a portfolio (P) composed of two stocks A and B. Your portfolio is invested 50% in stock A and 50% in stock B. What is your portfolio's: i) Expected return ii) Volatility iii) Sharpe ratio iv) Beta v) Unexplained return (Jensen's alpha) by CAPM vi) Is your portfolio on the Capital Market Line (CML)? Is it on the Security Market Line (SML)?

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