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Portfolio Returns. Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free interest rate is 4% and

  1. Portfolio Returns. Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10% according to CAPM.
    1. What is the expected return of MegaChip stock? (4 points)
    2. What is the expected return of Littlewing stock? (4 points)
    3. What is the beta of a portfolio of 60% MegaChip and 40% Littlewing stock? (4 points)
    4. What is the expected return of a portfolio of 60% MegaChip and 40% Littlewing stock? (4 points)
    5. Plot the Security Market Line and point out the market portfolio, each companys stock, and the proposed portfolio above. (4 points)

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