We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It is prospers in recessions when other firms are struggling. Consequently, its beta is negative, minus -0.2.
A. If the interest rate on T-bills is 4% and the expected return on the market portfolio is 14%, what is the expected return on the shares of the law firm according to CAPM?
Answer: Expected return %
B. Suppose you invested 90% of your wealth in the market portfolio and the remainder of your wealth in the shares in the law firm. What would be the beta of your portfolio?
Answer: Beta is?