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:

Restocking Quantity

The quantity of inventory ordered to replenish stock levels to a predetermined amount.

Inventory Costs

The costs associated with storing, managing, and financing a company's inventory, including such things as warehousing and insurance.

Shortage Cost

Costs incurred when demand exceeds supply, including opportunity costs of not meeting customer demand and potential loss of sales.

Carrying Cost

The full expenditure of keeping stock on hand, covering expenses related to storing, managing, value reduction, and the cost of alternative opportunities forgone.