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?
Definitions:
Incurred
To suffer or become subject to an obligation, usually a cost or expense, as a result of one's actions or the operation of a business.
Accrual Accounting
A financial recording technique that logs income and expenditures at the time they are accrued or incurred, irrespective of the actual cash flow timing.
Net Income
The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenues.
Sales
The total amount of revenue generated from goods or services sold by a business.
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