ST-5.

a. (Security market line) Determine the expected return and beta for the following portfolio:

b. Given the preceding information, draw the security market line and show where the securities fit on the graph. Assume that the risk-free rate is 8 percent and that the expected return on the market portfolio is 12 percent. How would you interpret these findings?

Transcribed Image Text:

PERCENTAGE STOCK OF PORTFOLIO BETA EXPECTED RETURN 1 40% 1.00 12% 2 25 0.75 11 3 35 1.30 15