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Sobeys stock has a beta of 0.9, while Lexcon stock has a beta of 1.35. if...

Sobeys stock has a beta of 0.9, while Lexcon stock has a beta of 1.35. if the risk-free rate is 2%, and the market risk premium is 8%, what is the expected return on a portfolio with equal holdings of Sobeys and Lexcon.

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Answer #1

Portflolio Beta is weighted Avg Beta of Securities in that Portfolio.
Portfolio Beta = [ ( 0.5 * 0.9 ) + ( 0.5 * 1.35 ) ]

= 0.45 + 0.675

= 1.125

Expected Ret = Rf + Portfolio Beta ( Risk premium)

= 2% + 1.125 ( 8%)

= 2% + 9%

= 11%

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