5. Assume that the expected rate of return on the market portfolio is 23% (rM = .23) and the rate of return on T-Bills (risk-free) is 7% (rf = .07). The standard deviation of the market is 32% (M = .32). Assume that the market portfolio is ecient. (a) What is the equation for the capital market line? (b) If an expected return rate of 39% is desired, what is the standard deviation of this position? (c) If you have $1000 to invest, how should you invest it to achieve the above position?
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