Question: he following are estimates for two stocks. Stock Expected Return Beta firm-specific Standard Deviation A 0.15 0.78 0.34 B 0.24 1.4 0.41 The market index

he following are estimates for two stocks.

Stock

Expected Return

Beta

firm-specific Standard Deviation

A

0.15

0.78

0.34

B

0.24

1.4

0.41

The market index has a standard deviation of 0.17 and the risk-free rate is 0.09.

Suppose that we were to construct a portfolio with proportions: Stock A 0.31 Stock B 0.42 The remaining proportion is invested in T-bills.

Compute the beta of the portfolio.

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