A stock has a beta of 1.20 and an expected return of 14 percent. A risk-free ass
ID: 2768522 • Letter: A
Question
A stock has a beta of 1.20 and an expected return of 14 percent. A risk-free asset currently earns 3.0 percent.
What is the expected return on a portfolio that is equally invested in the two assets? (Round your answer to 2 decimal places. (e.g., 32.16))
If a portfolio of the two assets has a beta of 0.72, what are the portfolio weights? (Round your answer to 4 decimal places. (e.g., 32.1616))
If a portfolio of the two assets has an expected return of 10 percent, what is its beta? (Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161))
If a portfolio of the two assets has a beta of 2.40, what are the portfolio weights? (Negative amount should be indicated by a minus sign.)
A stock has a beta of 1.20 and an expected return of 14 percent. A risk-free asset currently earns 3.0 percent.
a.What is the expected return on a portfolio that is equally invested in the two assets? (Round your answer to 2 decimal places. (e.g., 32.16))
Expected return % b.If a portfolio of the two assets has a beta of 0.72, what are the portfolio weights? (Round your answer to 4 decimal places. (e.g., 32.1616))
Weight of stock Risk-free weight c.If a portfolio of the two assets has an expected return of 10 percent, what is its beta? (Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161))
Beta d.If a portfolio of the two assets has a beta of 2.40, what are the portfolio weights? (Negative amount should be indicated by a minus sign.)
Weight of stock Risk-free weight
Explanation / Answer
weight of stock = 0.72/ 1.20 = 0.6, round 2 places: 60.00%
weight of risk-free asset = 1 - weight of stock = 1 - 0.60 = 0.40, rounded: 40%
0.10 -0.03= 0.11X
"X", weight of stock = 0.6364
(1 - X), weight of RFR = (1 - weight of stock) = 0.3636 (RFRs have beta = 0), so...
weight of stock * beta of stock = beta of portfolio = 0.6364 * 1.20 = 0.76368 round to 3 places = 0.764
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.