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    SML, Expected Return, Beta

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    5) The rate on Treasury bills is 4 percent, and the equity risk premium is 10 percent. Use the SML to estimate the return on each of the above stocks.
    Security Standard deviation Correlation with market

    A 0.30 0.70
    B 0.75 0.30
    C 0.45 0.50
    D 0.50 0.16

    6) Maria has decided to invest $5,000 in each of the above stocks. Compute the expected return on the portfolio and the portfolio beta.

    Security Standard deviation Correlation with market

    A 0.30 0.70
    B 0.75 0.30
    C 0.45 0.50
    D 0.50 0.16

    (See attached file for full problem description with data charts)

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    https://brainmass.com/business/capital-asset-pricing-model/sml-expected-return-beta-79122

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    Solution Summary

    Calculates the return on stocks using security market line (SML) and calculates the expected return on the portfolio and the portfolio beta for a portfolio made up of these stocks.

    $2.19

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