Both assets B and C plot on the SML. Asset B has a beta of 1.3 and an

Both assets B and C plot on the SML. Asset B has a beta of 1.3 and an expected return of 13.1%. Asset C has a beta of .50 and an expected return of 7.50%.

The risk-free rate is 4%. If you wish to hold a portfolio consisting of assets B and C, and have a portfolio beta equal to 1.0, what is the expected return of the portfolio?
A) 4.0%
B) 7.5%
C) 11.0%
D) 13.1%

ANSWER

Answer: C
Explanation: C) slope = = = = 7.0%.
Next, add this to the risk-free rate of 4% and you get a market return of 11% and a beta of 1.0.