Both Assets B and C Plot on the SML

question 67

Multiple Choice

Both assets B and C plot on the SML.Asset B has a beta of 1.1 and an expected return of 12.1%.Asset C has a beta of .80 and an expected return of 7.50%.The risk-free rate is 4% and the expected return on the market portfolio is 11%.If you wish to hold a portfolio consisting of assets B and C,and have a portfolio beta equal to 1.0,what proportion of the portfolio must be in asset B?

• A)0.333
• B)0.50
• C)0.625
• D)0.75

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Definitions:

TFC

Total Fixed Cost, which is the sum of all costs that remain constant regardless of the level of production or output.

TVC

Total Variable Costs, which are the costs that change with the level of production or service delivery.

MC

Refers to Marginal Cost, the extra cost incurred from producing one more unit of a good or service.

Profit-Maximizing

Profit-Maximizing refers to the point at which a firm achieves the highest possible profit through the manipulation of production or pricing strategies.