Asset W has an expected return of 13.6 percent and a beta of 1.70. If the risk-f
ID: 2730525 • Letter: A
Question
Asset W has an expected return of 13.6 percent and a beta of 1.70. If the risk-free rate is 5.1 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 13.6 percent and a beta of 1.70. If the risk-free rate is 5.1 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
(1) Working notes:
(a) Portfolio return = % of Asset W x Expected return of W + % of Risk-free asset x Expected return of risk-free asset
(b) Beta of risk-free asset = 0
(c) Portfolio beta = % of Asset W x Beta of asset W
Therefore:
Note: First question is answered.
% of W Return of W (%) % of Risk-free asset Return of Risk-free asset (%) Portfolio return (%) Beta of W Portfolio Beta (A) (B) (C)=100-(A) (D) (A)x(B)+(C)x(D) (E) (A)x(E) 0 13.6 100 5.1 5.10 1.7 0.000 25 13.6 75 5.1 7.23 1.7 0.425 50 13.6 50 5.1 9.35 1.7 0.850 75 13.6 25 5.1 11.48 1.7 1.275 100 13.6 0 5.1 13.60 1.7 1.700 125 13.6 -25 5.1 15.73 1.7 2.125 150 13.6 -50 5.1 17.85 1.7 2.550Related Questions
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