Both Assets B and C Plot on the SML

question 104

Multiple Choice

Both assets B and C plot on the SML. Asset B has a beta of 1.3 and an expected return of 13.1%. Asset C has a beta of .50 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 C?

• A) 0.375
• B) 0.50
• C) 0.625
• D) 0.75

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