Suppose that the S&P/ TSX Composite Index, with a beta of 1.0, ha s an expected return

Question:

Suppose that the S&P/ TSX Composite Index, with a beta of 1.0, ha s an expected return of 10% and Treasury bills provide a risk -free return of 4%.

a. Construct a portfolio from these two assets with an expected return of 8%. What is the beta of this portfolio?

b. Construct a portfolio from these two assets with a beta of .4. Calculate the portfolio's expected return.

c. Show t ha t the risk premiums of the portfolios in (a) and (b) are proportional to their betas.

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...