1. You are planning to create a portfolio of two stocks: Amazon and Tesla. The Amazon beta is 1.16 and Tesla is 1.89.

Using the US 10 yr. treasury bond rate as a proxy of the risk free rate of return, we know that it is 1.70%. As a proxy for market average rate of return we use S&P 500 etf which is 15.40%. a) calculate the mean return of the portfolios consisting of: 50% of Amazon and 50% of Tesla.

b) Calculate also the beta of the portfolio. 2. Consider the CAPM. The risk-free rate is 3.6%, and the expected return on the market is 10%. What is the expected return on a stock with a beta of 1.35?