Consider the following historic information on the market, the risk-free rate (T

Question

Consider the following historic information on the market, the risk-free rate (T-Bills) the two mutual funds, Templeton and Fidelity.

                                          Templeton      Fidelity       Market        T-Bills

Average Return                    12,51%          6.77%        10.14%        2.40%

Beta                                     1.50              0.70               1               0

Assume that you invested in a two asset portfolio comprising the market portfolio and T-Bills over the same period covered in the table. Your portfolio beta was exactly the same as Fidelity. What is the porfolio weight on the market in your portfolio?

Explanation / Answer

Answer:Expected return =Rf+beta [(ER(m)-Rf)]

Templeton =2.40%+1.50[(10.14%-2.40%)]

=14.01%

Fidelity = 2.40%+0.70[(10.14%-2.40%)]

=7.818%

Portfolio return =14.01%*12.51%/19.28%+7.818%*6.77%/19.28%

=9.09%+2.74%

=11.84%

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.