Jason Jackson is attempting to evaluate 2 possible portfolios consisting of the same 5 assets but held in different proportions. He is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data:

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a. Calculate the betas for portfolios A and B.

b. If the risk-free rate is 2.8% and the market return is 9.8%, calculate the required return for each portfolio using the CAPM.

c. Then assume you believe that each of the five assets will earn the return (rj) shown in this table:

. Based on these figures and the weights , what returns do you believe that Portfolios A and B will earn? Which portfolio you would invest in and why?

Asset Asset Beta 1 2 3 7 AWN 1.33 0.71 1.26 1.06 0.91 Portfolio Weights Portfolio A Portfolio B 21% 28% 27% 13% 11% 22% 9% 21% 32% 16% 4 5 Total 100% 100% Asset 1 2 Returns 7.5% 5.5% 8.5% 8.0% 7.5% 3 4 5