Asset W has an expected return of 13 percent and a beta of 1.25. If the risk-fre

Question

Asset W has an expected return of 13 percent and a beta of 1.25. If the risk-free rate is 4.5 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not include the percent signs (%). Leave no cells blank - be certain to enter "0" wherever required. Round your portfolio expected return answers to 2 decimal places (e.g., 32.16). Round your portfolio beta answers to 3 decimal places (e.g., 32.161).)

Percentage of Portfolio Portfolio Portfolio in Asset W Expected Return Beta 0% % 25      % 50      % 75      % 100      % 125      % 150      %

Explanation / Answer

Solution:- Percentage of Portfolio (In Asset W)       Portfolio Expected Return Portfolio   Beta           0% 4.50% 1 25 6.63% 1.06 50 8.75% 1.13 75 10.88% 1.19 100 13.00% 1.25 125 15.13% 1.31 150 17.25% 1.38 Note the following formulas has been used above:- Beta of portfolio = (Beta of W*Weight of W) + (Beta of Risk free asset*Weight of Risk free asset) Beta of market is always = 1 Portfolio expected return = (Weight of W*Expected return of W) + (Weight of Risk free asset*Expected return of Risk free asset) We have assumed that investor can borrow funds at the risk free rate of return

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