A stock has a beta of 1.10 and an expected return of 12 percent. A risk-free ass

Question

A stock has a beta of 1.10 and an expected return of 12 percent. A risk-free asset currently earns 2.6 percent.

The expected return on a portfolio that is equally invested in the two assets is 12.94%.

1.) If a portfolio of the two assets has a beta of 0.77, what is the weight of stock and the Risk Free weight?(Round your answer to 4 decimal places. (e.g., 32.1616))

2.) If a portfolio of the two assets has an expected return of 9 percent, what is its beta?(Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161))

3.) If a portfolio of the two assets has a beta of 2.20, what are the portfolio weights? (Negative amount should be indicated by a minus sign.)

Explanation / Answer

b = (R - Rf) / (Rm - Rf) R = Expected Rate of Return Rf = Risk Free Interest Rate Rm = Expected Market Return b = Stock Beta Expected Market rate Rm=11.1455 1.Risk Free weight is 14.8609 2.Stock Bets is 1.57746

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