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A stock has a beta of 1.14 and an expected return of 10.5%. A risk-free asset currently earns 2.4%.
a. What is the expected return on a portfolio that is equally invested in the two assets?
b. If a portfolio of the two assets has a beta of .92, what are the portfolio weights?
c. If a portfolio of the two assets has an expected return of 9%, what is its beta?
d. If a portfolio of the two assets has a beta of 2.28, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.
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