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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:

Hats

A type of headwear that comes in various shapes, sizes, and materials, often used for fashion, protection, or ceremonial purposes.

Production

The process of creating goods or services by combining various inputs like labor, capital, and natural resources.

Production Possibility Frontiers

A curve depicting all maximum output possibilities for two or more goods given a set of inputs, demonstrating the trade-offs between choices of production.

Maximum Efficiency

The optimal use of resources to achieve the best possible output or outcome without wasting any resources.