1. A friend says that she expects to earn 13.35% on her portfolio with a beta of 1.7. 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 10.375% 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. 
2. What is the beta of your portfolio and is your friend getting a good or bad deal?

Answer rating: 100% (QA)

To determine the beta of your portfolio we can use the formula Betaportfolio WeightX BetaX First we ... View the full answer