Both Assets B and C Plot on the SML

question 94

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 B?

• A)0.375
• B)0.50
• C)0.625
• D)0.75

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Definitions:

Capital Budgeting

The process by which a business evaluates and selects long-term investment projects.

Product Markets

Venues where goods and services are traded between producers and consumers.

Rate Of Return

A measure of the profitability of an investment, calculated as the percentage ratio of profit or loss to the initial investment cost.

Assigned

In derivatives trading, it refers to the notification that an option holder has decided to exercise their option.