Look again at the set of the three efficient portfolios that we calculated in Section 8.1. a.

Question:

Look again at the set of the three efficient portfolios that we calculated in Section 8.1.

a. If the interest rate is 10%, which of the four efficient portfolios should you hold?

b. What is the beta of each holding relative to that portfolio? (If a portfolio is efficient, the expected risk premium on each holding must be proportional to the beta of the stock relative to that portfolio.)

c. How would your answers to (a) and (b) change if the interest rate were 5%?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...