A stock has a beta of 1.21 and an expected return of 11.9 percent. A risk-free a
ID: 2637106 • Letter: A
Question
A stock has a beta of 1.21 and an expected return of 11.9 percent. A risk-free asset currently earns 3.85 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 0.81, what are the portfolio weights (Weight of the stock and Weight of the risk-free asset)? (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 11.1 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 2.41, what are the portfolio weights (Weight of the stock and Weight of the risk-free asset)? (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).)
A stock has a beta of 1.21 and an expected return of 11.9 percent. A risk-free asset currently earns 3.85 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 0.81, what are the portfolio weights (Weight of the stock and Weight of the risk-free asset)? (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 11.1 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 2.41, what are the portfolio weights (Weight of the stock and Weight of the risk-free asset)? (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).)
Explanation / Answer
Ans
Ke= RF + B(Market rate - RF) a) Expected return = 11.9%/2+3.85%/2=7.88 b) Let weight of Asset Is x so weight of risk free asset is (1-x) .81=1.21*x+(1-x)0 .81=1.21x x=.67 Assetweight= .67 Risk free asset weight = .33 Note: Beta of risk free asset is 0 c) Let weight of Asset Is x so weight of risk free asset is (1-x) 11.1% = 11.9%(x) + 3.85%(1-x) 11.1% = 11.9%x+3.85% - 3.85X 7.25% = 8.05x x=7.25/8.05 x=.90 Asset = .90 Risk free asset weight = .10 Beta of potfolio= 1.21*.90 = 1.09 d) Let weight of Asset Is x so weight of risk free asset is (1-x) 2.41=1.21*x+(1-x)0 2.41=1.21x x=1.99 Assetweight= 1.99 Risk free asset weight = -.99Related Questions
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