Asset W has an expected return of 13.85 percent and a beta of 1.42. If the risk-

Question

Asset W has an expected return of 13.85 percent and a beta of 1.42. If the risk-free rate is 4.67 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

ERw= 13.85%

Bw= 1.42

Rf = 4.67%

Portfolio return = Ww x ERw + (1-Ww)x Rf

Portfolio Beta = Ww x Bw

Here Ww is weight of asset W.

% of Asset W

Expected return

Beta

0%

13.85% x 0 + (1-0)x4.67% = 4.67%

0x1.42 =0

25%

13.85% x 0.25 + (1-0.25)x4.67% = 6.965%

0.25 x1.42=0.355

50%

13.85% x 0.50 + (1-0.50)x4.67% = 9.26%

0.5 x1.42= 0.71

75%

13.85% x 0.75 + (1-0.75)x4.67% =11.555%

0.75 x1.42 =1.065

100%

13.85% x 1 + (1-1)x4.67% = 13.85%

1x1.42 =1.42

125%

13.85% x 1.25 + (1-1.25)x4.67% = 16.145%

1.25 x1.42 =1.775

150%

13.85% x 1.5 + (1-1.5)x4.67% = 18.44%

1.50 x 1.42= 2.13

% of Asset W

Expected return

Beta

0%

13.85% x 0 + (1-0)x4.67% = 4.67%

0x1.42 =0

25%

13.85% x 0.25 + (1-0.25)x4.67% = 6.965%

0.25 x1.42=0.355

50%

13.85% x 0.50 + (1-0.50)x4.67% = 9.26%

0.5 x1.42= 0.71

75%

13.85% x 0.75 + (1-0.75)x4.67% =11.555%

0.75 x1.42 =1.065

100%

13.85% x 1 + (1-1)x4.67% = 13.85%

1x1.42 =1.42

125%

13.85% x 1.25 + (1-1.25)x4.67% = 16.145%

1.25 x1.42 =1.775

150%

13.85% x 1.5 + (1-1.5)x4.67% = 18.44%

1.50 x 1.42= 2.13

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