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1
1. UPS, a delivery services company, has a beta of 1.4, and Wal-Mart has a beta of 0.8. The risk-free rate of interest is 4% and the market risk premium (rM-rRF)is 6%. What is the expected return on a portfolio with 40% of its money in UPS and the balance in Wal-Mart?
Expert Solution
Rate of Return on UPS = 4 + 1.4* (6)
= 12.4%
Rate of Return on Walmart = 4 + 0.8* (6)
= 8.8%
Portfolio Return = 60%*8.8 + 40%*12.4
= 10.24%
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