InClassPractice0 (1)

InClassPractice0 (1) - In Class Practice CAPM 1) You hold a...

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In Class Practice CAPM 1) You hold a portfolio consisting solely of $10,000 invested in McDonald’s stock. Suppose the risk free rate is 4%, McDonald’s stock has an expected return of 9% and a volatility of 27%, and the market portfolio has an expected return of 10% and a volatility of 16%. a. Under the CAPM assumptions, which portfolio has the lowest possible volatility while having the same expected return as McDonald stock? b. Under the CAPM assumptions, which portfolio has the highest possible expected return while having the same expected volatility as McDonald stock? c. Assume that the economy include only 3 stocks that have the following price/ number of shares: Stock Price Quantity McDonald 10 10M Lockheed Martin 20 4M Penguin Books Ltd 10 2M How would you invest the $10,000 (calculate the investment in the risk free security, McDonald, Lockheed Martin, Penguin Editions) to form the portfolio in a. as well as the portfolio in b. 2) Assume the risk free rate is 5% and the equity premium (excess expected return on the
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InClassPractice0 (1) - In Class Practice CAPM 1) You hold a...

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