Finance Assignment | Professional Writing
If the economy enters a boom, the stock of Company E will return 20% and the stock of Company F will return 40%. On the other hand, if the economy enters a recession, the stock of Company E will return -10% and the stock of Company F will return -25%.
The boom state is one-and-one-half times as likely as the recession state. The risk-free rate in the market is 2%, while the risk premium of the market portfolio is 6%. You are planning to set up a portfolio of these two securities with a beta of 1.6. Assuming that these two securities are fairly priced according to the CAPM, what should be their weights in the portfolio?
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