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1) You are considering investing in two stocks, Pelts, Inc., that manufactures fur coats, and PITA, Inc., a for-profit animal-rights advocacy group. Pelts and PITA are perfectly negatively correlated. Pelts has variance of 0.09, while PITA's variance is 0.16.
a) What is the covariance between Pelts and PITA?b) Consider a portfolio that consists of 57% Pelts and 43% PITA. What is the variance of this portfolio?c) If the risk-free rate is 6%, the market risk premium is 6%, and PITA's expected return is 5%, what is Pelt's expected return in equilibrium?
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