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

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.

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a Call the weight in the TSX w and the weight in Tbills 1 w Then w must satisfy the equation w x 10 ... View full answer

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