A stock has a beta of 1.22 and an expected return of 12 percent. A risk-free ass

Question

A stock has a beta of 1.22 and an expected return of 12 percent. A risk-free asset currently earns 3.9 percent.

What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

If a portfolio of the two assets has a beta of 0.82, what are the portfolio weights? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

If a portfolio of the two assets has an expected return of 11.2 percent, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

If a portfolio of the two assets has a beta of 2.42, what are the portfolio weights? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

A stock has a beta of 1.22 and an expected return of 12 percent. A risk-free asset currently earns 3.9 percent.

What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Expected Return = 12*50% + 3.9*50% = 7.95%

Answer

If a portfolio of the two assets has a beta of 0.82, what are the portfolio weights? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

Let Weight of stock be x

than weight of risk free asset be (1-x)

Portfolio Beta = 0.82

x*1.22 + (1-x)*0 = 0.82

x = 0.82/1.22

x= 0.6721

Weight of stock = 0.6721

than weight of risk free asset = (1-0.6721) = 0.3279

Answer

If a portfolio of the two assets has an expected return of 11.2 percent, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Let Weight of stock be x

than weight of risk free asset be (1-x)

Expected return on Portfolio = 11.20%

x*12 + (1-x)*3.90 = 11.20

12x -3.90x + 3.90 = 11.20

8.10x = 7.30

x = 7.30/8.10

Weight of stock = 7.30/8.10

than weight of risk free asset = (1-7.30/8.10) = 0.80/8.10

Portfolio Beta = 7.30/8.10* 1.22 + 0.80/8.10*0

Portfolio Beta = 1.10

Answer

If a portfolio of the two assets has a beta of 2.42, what are the portfolio weights? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

Let Weight of stock be x

than weight of risk free asset be (1-x)

Portfolio Beta = 2.42

x*1.22 + (1-x)*0 = 2.42

x = 2.42/1.22

x= 0.6721

Weight of stock = 1.9836

than weight of risk free asset = (1-1.9836) = -0.9836

Answer

What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

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