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:

Hypnosis

A trance-like state of focused attention, reduced peripheral awareness, and an enhanced capacity for response to suggestion.

Hypnotized

A state of highly focused attention or concentration, often associated with relaxation and heightened suggestibility.

Accuracy

In the context of information and measurement, accuracy refers to the closeness of a given measurement or value to its true value.

Dissociation

A split in consciousness in which one part of the mind operates independently of others.