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Determine the expected return and standard deviation

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Assume that the CAPM holds, the expected return on the market portfolio is 12%, the standard deviation of return on the market portfolio is 18% and all investors can borrow and lend at the riskless rate of 4%. Determine the expected return and standard deviation of return for the following portfolios:

(a) In this portfolio, the investor has borrowed $400,000, and invested this, along with $800,000 of her own money in the market portfolio. She has no other investments.

(b) The total investment is $235,000. Of this, $47,000 is invested in the riskless asset, and the rest is invested in Regis Corporation stock. Regis stock return has a correlation coefficient of 0.7 with the market portfolio return. The standard deviation of return on Regis stock is 45%. (This problem requires some statistics knowledge. Please try to get help from others if you cannot solve this on your own.)

(c) The total investment is $200,000. This portfolio includes a short position in an asset whose beta is 0.4 and whose standard deviation of return is 8%, as well as an investment of $400,000 in the market portfolio. There are no other investments.

Reference no: EM133073929

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