10.34 Suppose the current risk-free rate is 7.6 percent. Potpourri Inc. stock has a beta of 1.7 and an expected return of 16.7 percent. (Assume the CAPM is true.)

a. What is the risk premium on the market?

b. Magnolia Industries stock has a beta of 0.8. What is the expected return on the Magnolia stock?

c. Suppose you have invested $10,000 in both Potpourri and Magnolia, and the beta of the portfolio is 1.07. How much did you invest in each stock? What is the expected return on the portfolio?