Questions to be answered using the below problem: 
a. What financial concept or principle is the problem asking you to solve? 
b. In the context of the problem scenario, what are some business
decisions that a manager would be able to make after solving the
problem?
c. Is there any additional information missing from the problem that
would enhance the decision-making process?
d. Without showing mathematical calculations, explain in writing how
you would solve the problem.

Problem:
A portfolio that combines the risk-free asset and the market portfolio
has an expected return of 25 percent and a standard deviation of 4
percent. The risk-free rate is 5 percent, and the expected return on
the market portfolio is 20 percent. Assume the capital-asset pricing
model holds. What expected rate of return would a security earn if it
had a 0.5 correlation with the market portfolio and a standard
deviation of 2 percent?

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Request for Question Clarification by leapinglizard-ga on 14 Oct 2005 20:23 PDT

Is this a school assignment?

Does the problem itself have to be solved, or do you only want answers
for the first four subquestions a, b, c, d?

leapinglizard