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Show that build a portfolio whose sharpe ratio exceeds

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Reference no: EM132984855

Consider the following pieces of information:

Risk-free rate = 2%

Market portfolio: Expected return = 7%, Volatility (return standard deviation) = 20%

Stock A: Expected return = 7%, Volatility = 30%, Market beta = 1.2

Problem 1: Show that you can build a portfolio whose Sharpe ratio exceeds the Sharpe ratio of the market (providing one such portfolio will suffice; you do not need to find the maximum Sharpe ratio one can obtain).

Reference no: EM132984855

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