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The risk-free rate is 0.25%. The expected return on stock A, stock B, and the market portfolio are 4%, 4.2%, and 2.5%, respectively. The market
The risk-free rate is 0.25%. The expected return on stock A, stock B, and the market portfolio are 4%, 4.2%, and 2.5%, respectively. The market betas of A and B are 1.5 and 1.6, respectively. You hold the market portfolio, and are offered a portfolio of A and B to add to it. You are not told the exact proportions of A and B in the portfolio, other than neither weight is negative. Should you buy the portfolio of A and B?
A. Yes
B. No
C. It depends on the proportions of A and B in the portfolio
D. It depends if A and B are in the market portfolio
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