Question: Use the following information to answer the questions Security Beta Standard Deviation Expected return S&P 500 Risk-free security Stock A Stock B Stock C 1.0

Use the following information to answer the questions

Security

Beta

Standard Deviation

Expected return

S&P 500

Risk-free security

Stock A

Stock B

Stock C

1.0

0.0

0.6

( )

1.2

20%

0%

15%

30%

25%

8.0%

4.0%

( )%

12.0%

( )%

  1. A complete portfolio is composed of the risk-free security and a risky portfolio, Q, constructed with two risky securities, X and Y. Given the risk-free rate of 4%. X has an expected return of 10%, and Y has an expected return of 20%.

a.Given the expected return of 14% for the risky portfolio Q, what are the weights for X and Y, respectively?

b. You would like to form a complete portfolio with the expected return of 19%. What are the wights for the risk-free security and the risky portfolio Q, respectively?

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