Team recommend investing in portfolio

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You and your Team have to brief the head of a hedge fund, Mr. Moneypockets, who is thinking about creating a portfolio investing just in these three stocks, for a major client of his that is willing to invest $100M in this particular portfolio. However, since this is a very large amount of money, relatively speaking, he wants your team to advise him on his idea. The volatility of his proposed market portfolio is 10% and it has an expected return of 8%, The risk free rate is 3%, and is based on appropriate U.S. government securities ("Treasuries"). The portfolio weights, volatility and correlation with the market portfolio of his three stocks are given in the table below: Portfolio Weight Volatility Correlation with Market Portfolio Yahoo 0.25 12% 0.4 Microsoft 0.35 25% 0.6 Google 0.40 13% 0.5 1. If you (and his client) expect to receive a rate of return 9% on this portfolio , would your Team recommend investing in this portfolio? Explain your team rationale to Mr. Moneypockets. 2. Assume the CAPM correctly prices risk, does your Team think the market portfolio is efficient? Explain why or why not to Mr. Moneypockets.

Reference no: EM131904282

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