Asset W has an expected return of 11.4 percent and a beta of 1.40. If the risk-f

Question

Asset W has an expected return of 11.4 percent and a beta of 1.40. If the risk-free rate is 3.7 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.)

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

Explanation / Answer

Percentage of Portfolio Portfolio Portfolio in Asset W Expected Return Beta 0 3.70% 0 25% 5.63% 0.35 50% 7.55% 0.7 75% 9.48% 1.05 100% 11.40% 1.4 125% 13.33% 1.75 150% 15.25% 2.1 what is the slope of the line that results? Slope is the Market risk Premium ie 5.50% Notes First we have to find Market risk Premium using CAPM modal .114=.037+1.40(MRP) .077=1.40MRP MRP=.077/1.40 =5.50% Then we have to find the weigted beta by Mutlpying beta of W stock with Percentage of Portfolio example 25% of 1.40beta =.35 then we have to find the return of stock

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