Suppose the risk premium on the market portfolio is estimated at 8% with a standard deviation of 22% You decide to put 25% of your money in Toyota and 75% of your money in Ford Suppose the beta of Toyota = 1.10 Suppose the beta of Ford = 1.25 What is the risk premium of your portfolio?

9.7%

Explanation:

For computing the risk premium, first we have to determine the beta portfolio which is shown below:

Portfolio beta = 0.25 × 1.10 + 0.75 × 1.25

                       = 0.275 + 0.9375

                       = 1.2125

Now the risk premium is

= Portfolio beta × risk premium on the market portfolio

= 1.2125 × 8%

= 9.7%

To figure this out, you would find the area of the book by doing 9 * 6, which is 54. Now what you do is multiply that by 1.5 since that is the scale factor, and you get 81 in²

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