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Assume That Both Apple and Yahoo Plot on the SML

Question 110

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Assume that both Apple and Yahoo plot on the SML.Apple has a beta of 2.6 and an expected return of 21.2%.Yahoo has a beta of 0.90 and an expected return of 9.3%.The expected return on the market portfolio is 10%and the risk-free rate is 3%.If you wish to hold a portfolio consisting of Apple and Yahoo and have a portfolio beta equal to 1.5,what proportion of the portfolio must be in Apple? What is the expected return on the portfolio?  Apple  Yahoo  Market Portfolio  Risk-free Asset  Beta 2.60.91.00.0 Expected Return 21.2%9.3%10.0%3.0%\begin{array} { | l | c | c | c | c | } \hline & \text { Apple } & \text { Yahoo } & \text { Market Portfolio } & \text { Risk-free Asset } \\\hline \text { Beta } & 2.6 & 0.9 & 1.0 & 0.0 \\\hline \text { Expected Return } & 21.2 \% & 9.3 \% & 10.0 \% & 3.0 \% \\\hline\end{array}

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βp = Σ βi ∗ wi = 1.50 = 2.6 ∗ wa + 0...

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