QUESTION 1
Suppose you form a portfolio consisting of $35,000 invested in a mutual fund with beta of 1.4, $31,000 invested in Treasury securities (assume risk-free), and
$27,000 invested in an index fund with the same beta as the entire market. Expected market risk premium is 5.4%. Risk-free rate is 1.4%. What is the expected
return of this portfolio according to the CAPM?
a. 6.9%
b. 6.6%
c. 7.2%
d. 7.1%
e. 5.8%