Author Question: Your friend, Dobson, manages the Formula Growth mutual fund. Dobson expects to earn 11% on his ... (Read 24 times)

strangeaffliction · **on:** Apr 25, 2021

Your friend, Dobson, manages the Formula Growth mutual fund. Dobson expects to earn 11% on his portfolio with a beta of 1.2. You only invest in shares of General Electric and T-Bills. You like GE because it was started in 1890 by Thomas Edison, the great American inventor, and it has a diversified portfolio of products including jet engines and MRI diagnostic imaging machines. The expected return of GE is 13% and its beta is 1.40. The expected return on T-Bills is 2%. If you construct your portfolio so that its risk is equal to the risk of Formula Growth, then what portfolio weight do you need on the shares of GE?
◦ 0.85
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◦ 0.89

debra928 · **Reply #1 on:** Apr 25, 2021

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