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What is our portfolio beta and what is its expected return

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Question - The current risk free rate is 4% and the expected risk premium on the market portfolio is 7%. An asset has a beta of 1.2. What is the expected return on this asset? Interpret the number 1.2.

a) An asset has a beta of 0.6. What is the expected return on this asset?

b) If we invest 1/2 of our money in the first asset and 1/2 of our money in the second, what is our portfolio beta and what is its expected return?

c) Relative to the first asset our portfolio has a smaller expected return, why?

d) Does this mean the first asset is better than the portfolio?

Reference no: EM132992106

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