Portfolio of stocks with weights

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Suppose you have the following information about three stocks:• Stock 1: α = 0.9%, β = 1.2, σ(e) = 12%• Stock 2: α = 1.2%, β = 0.6, σ(e) = 8%• Stock 3: α = -0.6%, β = 1.1, σ(e) = 16%

(a) Calculate α, β and σ(e) of a portfolio of these stocks with weights {35%, 25%, 40%}.Show your results accurate to 4 decimal places.

(b) Calculate the reward to volatility ratio (slope of the capital allocation line) for theportfolio in (a) if the risk-free rate of return is 1%, the expected excess return on the market indexis 7% and the standard deviation of market index returns is 10%. Show your results accurate to4 decimal places

Reference no: EM131105488

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