Repeat Problem 17.17 on the assumption that the portfolio has a beta
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Repeat Problem 17.17 on the assumption that the portfolio has a beta

Problem 17.18.

Repeat Problem 17.17 on the assumption that the portfolio has a beta of 1.5. Assume that the dividend yield on the portfolio is 4% per annum. 
Hint
When the value of the portfolio goes down 5% in six months, the total return from the portfolio, including dividends, in the six months is -5+2=-3%i.e., -6% per annum. This is 12% per annum less than the risk-free interest rate. Since the portfolio has a beta of 1.5 we would expect the market to provide a return of 8% per annum less than the risk-free interest rate, i.e., we would expect the ...

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