I am confusing on this solution.
I have followed the Schweser method and methods of previous exams to add the illiqduity premium to both numbers - it doesn’t work?
My method:
23% x 0.85 x 0.31 = 6.06% (PLUS Illiquid Premium 60bps) = 6.6%
23% x 0.31 = 7.13% (PLUS illiquid Premium 60bps) = 7.73%
(6.6 x 0.65) + (7.73 x 0.35) = 7.03%
Return = 7.04% + RF (2.5%) = 9.5%
Answer is 9.8?