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Analyzing a Portfolio You have $100,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 12.5 percent and that has only 80 percent of the risk of the overall market. If X has an expected return of 28 percent and a beta of 1.6, Y has an expected return of 16 percent and a beta of 1.2, and the risk-free rate is 7 percent, how much money will you invest in Stock X? How do you interpret your answer?

Systematic versus Unsystematic Risk Consider the following information on Stocks I and II:

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