Use the Information for the Question(s)below

question 70

Essay

Use the information for the question(s)below.
Tom's portfolio consists solely of an investment in Merck stock.Merck has an expected return of 13% and a volatility of 25%.The market portfolio has an expected return of 12% and a volatility of 18%.The risk-free rate is 4%.Assume that the CAPM assumptions hold in the market.
-You currently own $100,000 worth of Wal-Mart stock.Suppose that Wal-Mart has an expected return of 14% and a volatility of 23%.The market portfolio has an expected return of 12% and a volatility of 16%.The risk-free rate is 5%.Assuming the CAPM assumptions hold,what alternative investment has the highest possible expected return while having the same volatility as Wal-Mart? What is the expected return of this portfolio?

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Definitions:

Architectural Expertise

Specialized knowledge or skills in the design and construction of buildings or structures, focusing on aspects such as aesthetics, functionality, and safety.

Amygdala

An area of brain tissue, with extensive connections to the olfactory system and hypothalamus, thought to be involved in mood, feeling, instinct, and short-term memory.

Cerebellum

Part of the brain that controls balance and muscular coordination.

Critical Thinking Skills

The capacity for objective analysis and evaluation of an issue in order to form a judgment.