2. A CFA wishes to determine the optimal weights of a portfolio consisting of two ETFs, one for the market and another for a high-beta industry. The CFA projects risk premiums of 10% for the market and 16% for the industry. He expects the standard deviation for the market to be 18%. Regression analysis computes a 1.5 beta for the industry ETF and a standard deviation of the error term of 13%. He believes both are reasonable to assume for the investment period ahead. Based on these forecasts, the weights in the risky portfolio should be ______% in the industry and ______% in the market.
3. The CFA in the preceding problem identifies another sector ETF that he believes is mispriced. This one has a .75 beta, the standard deviation of the error term is 17%, and in his opinion a 9% risk premium will be achieved. Adding these forecasts to those above, the optimal weights in the risky portfolio would be ______% in the high-beta ETF, ______% in the low beta one, and ______% in the market.
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