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Suppose the expected returns and standard deviations of stocks A and B are E(RA) = 0.17, E(RB) = 0.27, StdDevA = 0.12, and StdDevB = 0.21, respectively. a. Calculate the expected return and standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation between the returns on A and B is 0.6. b. Calculate the standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation coefficient between the returns on A and B is -0.6. c. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?
Suppose the expected return on the market portfolio is 14.7 percent and the risk-free rate is 4.9 percent. Morrow Inc.stock has a beta of 1.3 Assume the capital-asset-pricing model holds. a. What is the expected return on Morrow's stock? b. If the risk-free rate decreases to 3.7 percent, what is the expected return on Morrow's stock?
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