You Hold the Positions in the Following Table

question 61

Multiple Choice

You hold the positions in the following table.What is the beta of your portfolio? If you expect the market to earn 12 percent and the risk-free rate is 3.5 percent,what is the required return of the portfolio?

• A) 14.21 percent
• B) 16.76 percent
• C) 13.97 percent
• D) 15.38 percent

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Definitions:

Market Portfolio

A theoretical portfolio that includes all assets available in the market, each weighted by its market capitalization, often used in the Capital Asset Pricing Model (CAPM).

SML Relationship

The Security Market Line relationship, which represents the expected return of a security or portfolio in relation to its beta, or market risk.

Multifactor CAPM

An extension of the Capital Asset Pricing Model (CAPM) that incorporates multiple factors in the assessment of risk and expected return of an asset, beyond just the market risk.

Hedge Portfolios

Investment strategies designed to reduce or mitigate risk in an investment portfolio by making counterbalancing investments, often involving derivatives.