For Problems 12–16, assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.
You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 13% with a standard deviation of 25%. Draw the CML and your fund’s CAL on an expected return/standard deviation diagram.
a. What is the slope of the CML?
b. Characterize in one short paragraph the advantage of your fund over the passive fund.
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