Asset W has an expected return of 13.9 percent and a beta of 1.43. If the risk-f

Question

Asset W has an expected return of 13.9 percent and a beta of 1.43. If the risk-free rate is 4.68 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 portfolio expected return answers as a percentage and round to 2 decimal places (e.g., 32.16). Round your portfolio beta answers to 3 decimal places (e.g., 32.161).)

Percentage of Portfolio Portfolio Portfolio in Asset W Expected Return Beta 0%    % 25       % 50       % 75       % 100       % 125       % 150       %

Explanation / Answer

Portfolio return = weight of A * return on A + weight of risk free asset * return on risk free asset

For 25% case = 0.25*13.9 + .75*4.68 = 6.99%

Portfolio beta = weight of A * beta of A

for 25% case = 0.25 * 1.43 = 0.358

weight (W) weight(Risk free) Expected Return (in %) Beta 0% 100% 4.68 0.000 25% 75% 6.99 0.358 50% 50% 9.29 0.715 75% 25% 11.60 1.073 100% 0% 13.9 1.430 125% -25% 16.21 1.788

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