A hypothetical market contains only two stocks and a risk-free asset. They have the following characteristics. Stock 1 Stock 2 Risk-free Return (%) 5 10 3 Standard deviation (%) 5 10 0 The correlation between the returns on Stock 1 and Stock 2 is 0.5. The market is consistent with the Capital Asset Pricing Model. (a) Find the weight in each stock. (b) Calculate the expected return and the standard deviation of the return of the market portfolio

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