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What is beta of portfolio and is friend getting a good deal

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Reference no: EM132905725

Problem 1: A friend says that she expects to earn 13.5% on her portfolio with a beta of 2. You have a two-asset portfolio including stock X and the risk-free security. Stock X is on the SML (you're not sure about your friend's portfolio) with an expected return of 11.5% and a beta of 1.25. The expected return on the risk-free security is 3.5%. You construct a portfolio (with X and the risk-free asset) to match your friend's return. What is the beta of your portfolio and is your friend getting a good or bad deal?

Reference no: EM132905725

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