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International Financial Management

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP5: Part 5: Short-term Asset And Liability Management

Section: Chapter Questions

Problem 3Q

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Question

Consider an equal-weighted portfolio that
comprises two assets: A and B. The monthly
20.
returns for each asset for the first four months of
the year are given below.
Month 1 Month 2 Month 3 Month 4
Asset A return
5%
-2%
-3%
-6%
Asset B return
4%
1%
?
2%
If the effective annual rate of return on the equal-
weighted portfolio calculated from the geometric
sum of monthly portfolio returns is 13.49%, what
is the Month 3 return for asset B?
Please explain in detail the rationale behind each step.

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