How would change holdings of the two stocks

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You are an investment advisor. You currently own two stocks, A and B, with the following characteristics:

            Expected Return         Beta

X             10%                      0.8

Y             16%                        1.5

The current risk-free rate is 2 percent, and the expected return on the market is 12 percent.

Problem 1: How would you change your holdings of the two stocks (i.e., for each, would you sell or buy more)? Show your calculations (and explain).

Reference no: EM132769782

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