Asset W has an expected return of 13 percent and a beta of 1.25. If the risk-fre

Question

Asset W has an expected return of 13 percent and a beta of 1.25. If the risk-free rate is 4.8 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.)

If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Asset W has an expected return of 13 percent and a beta of 1.25. If the risk-free rate is 4.8 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.)

Explanation / Answer

a)

b)

Slope of the line =( Expected Return in Asset W - Risk Free rate)/Beta

Slope of the line = (12.80% - 4.7%)/1.25

Slope of the line = 6.48%

Percentage of Portfolio in Asset W Percentage of Portfolio in Risk free Assets Portfolio Expected Return Portfolio Beta [a] [b = 100-a] [ c = a%*12.8% + b%*4.7%] [ d = a%*1.25 + b%*0] 0 100 4.70%                              0 25 75 6.73%                         0.313 50 50 8.75%                         0.625 75 25 10.78%                         0.938 100 0 12.80%                         1.250 125 -25 14.83%                         1.563 150 -50 16.85%                         1.875

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