Question 1. Supposed you invest $400,000 in government bonds and $ 600,000 in the market portfolio. what is the return on your portfolio if bonds yield 6 percent and the market risk premium is 8.6 percent? What does the return on this portfolio imply for the expected return on individual shares with betas of 0.6?
(The step of calculation must be shown)
Question 2. Explain how forming a portfolio may result in reduction in risk. what is the necessary condition for this risk reduction to occur?