Grace Has One Risk-Free Asset and One Risky Stock in Her

Multiple Choice

Grace has one risk-free asset and one risky stock in her portfolio. The risk-free asset has an expected return of 1.2%. The risky asset has a beta of 1.5 and an expected return of 20.0%. What is the expected return on the portfolio if the portfolio beta is 1.05?

A) 1.2%
B) 8.83%
C) 10.60%
D) 14.36%
E) 20.00%