A stock has a beta of 1.27 and an expected return of 12.5 percent. A risk-free a

Question

A stock has a beta of 1.27 and an expected return of 12.5 percent. A risk-free asset currently earns 4.15 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 0.87, 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 11.7 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 2.47, 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) Expected return = Riskfree return + beta ( Market retun - Rsik free return)

= 4.15% + 1.27 ( 12.5% - 4.15%)

= 4.15% + 10.6%

= 14.75%

Equal return would average out the return = 14.75%/2 = 7.38%

B) If a portfolio of the two assets has a beta of 0.87, what are the portfolio weights?

?a=1.27
?b=0.00

?=0.87=w

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