A stock has a beta of 1.27 and an expected return of 12.5 percent. A risk-free a
ID: 2757310 • Letter: A
Question
A stock has a beta of 1.27 and an expected return of 12.5 percent. A risk-free asset currently earns 4.15 percent. Required: What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Expected return 2.7 % If a portfolio of the two assets has a beta of 0.87, what are the portfolio weights? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g.f 32.1616).) If a portfolio of the two assets has an expected return of 11.7 percent, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) If a portfolio of the two assets has a beta of 2.47, what are the portfolio weights? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)Explanation / Answer
Expected rate of return=
=0.5*S+0.5*R
= 6.25+2.075
= 8.325%
2) portfolio Beta (Pb)
=W1*SB+ W2 * RB
0.87= W1*1.27+0
W1 =0.685039
W2= W1-W2
=0.3146
3) expected return is 11.7 %
W1 = 0.904 ,W2 0.095808
Beta of Stock will be = 0.904*1.27
= 1.14
4) porfolia beta = 2.47
weight of stock will be =2.47/1.27
=1.944
Weight of Risk free security
= 1-1.944
=-0.944
1 B=1.27 Expected return = S 12.5% Risk free rate of return =R= 4.15 %Expected rate of return=
=0.5*S+0.5*R
= 6.25+2.075
= 8.325%
2) portfolio Beta (Pb)
=W1*SB+ W2 * RB
0.87= W1*1.27+0
W1 =0.685039
W2= W1-W2
=0.3146
3) expected return is 11.7 %
W1 = 0.904 ,W2 0.095808
Beta of Stock will be = 0.904*1.27
= 1.14
4) porfolia beta = 2.47
weight of stock will be =2.47/1.27
=1.944
Weight of Risk free security
= 1-1.944
=-0.944
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.