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An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return on 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is 0.4. The T-Bill rate of return is 5%.
A) The portion of the optimal risky portfolio that should be invested in stock B is what?
B) What is the expected return on the optimal risky portfolio?
C) Investors wants to have an expected return of 10% for a complete portfolio. What proportion of his investment is in T-Bills?
D) What proportion of the investor's complete portfolio is in stock A and in stock B?
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Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%. Initial outlay = $450 Cash flows: Year 1 = $325 Year 2 = $65 Year 3 = $100 A) 3.43 years B) 3.17 years C) 2.88 years D) 2.6 years
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