Part A,

Don't understand below :

 Is it higher or lower than the beta of portfolio #3?  (In practice, it should not be higher or lower than the return on portfolio #3, since arbitragers would force the returns to be equal. If we solved for the risk-free rate and the market risk premium from portfolios #1 and #2, there values would not give the expected return in portfolio #3.)

combine #1 and #2 to get expected return of 20%, we have weight -1 on #1 and weight 2 on #2,  so the combine portfolio will have  beta = -1(0.5) + 2(1.1) = 1.7   which is below #3 alone.   so we can say that combine #1 and #2 is better than #3 .

but words obove says in practice the two number will be equal , is that mean combine #1 and #2 with expect return 20% will have the same beta as #3 alone?

yes, the risk-fee rate and market  risk premium from #1 and #2 will not give the result of #3, so what's that mean? does that mean, #3 is not lie on the security market  line?

[NEAS: In a perfectly efficient market where the CAPM holds, this three stock scenario would not persist. The exercise shows which stocks the investor would prefer and which the investor would not buy. These investor preferences would quickly move the market back to equilibrium.]