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a. Determine the expected return and beta for the following portfolio: b. Given the foregoing information, draw

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a. Determine the expected return and beta for the following portfolio:
A. Determine the expected return and beta for the following

b. Given the foregoing information, draw the security market line and show where the securities and portfolio fit on the graph. Assume that the risk- free rate is 2 percent and that the expected return on the market portfolio is 8 percent. How would you interpret these findings?

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EXPECTED RETURN BETA 1.00 0.75 1.30 STOCK PERCENTAGE OF PORTFOLIO 12% 40% 25 35 15

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Foundations of Finance The Logic and Practice of Financial Management

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Authors: Arthur J. Keown, John D. Martin, J. William Petty

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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.

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