6. The manager of Solomon Hedge Fund Co., Mr. Horsefield, is evaluating the return and risk of several

possible portfolios, which consist of the same four assets held in different proportions. He has gathered

the data shown in the following table:

Portfolio weights

Asset Asset beta Portfolio A Portfolio B Portfolio C

1 2.0 20% 30% 40%

2 1.8 20% 20% 10%

3 1.2 20% 20% 10%

4 0.4 40% 30% 40%

Total 100% 100% 100%

6.1 Use the information above to calculate the Betas of Portfolio A, B and C. Set the market portfolio as

benchmark, please rank the risk level of Portfolio A, B and C. (3+2 =5 points)

6.2 If the average return rate of market is 13%, and the risk-free rate is 4%, what is the expected return

rate for portfolios A, B and C? (3 points)

6.3 Mr. Horsefield found that the return rates of portfolios A, B and C are all 15.34%. Which portfolio is

overvalued and which one is undervalued? (4 points)

6.4 Explain the relationships among the risk-free rate of return, market rate of return and market risk

premium, beta. (3 points)