Different investor weights. Two risky portfolios exist for? investing: one is a

Question

Different investor weights. Two risky portfolios exist for? investing: one is a bond portfolio with a beta of 0.5 and an expected return of 6.5?%, and the other is an equity portfolio with a beta of 1.2 and an expected return of 16.6?%. If these portfolios are the only two available assets for? investing, what combination of these two assets will give the following investors their desired level of expected? return? What is the beta of each? investor's combined bond and equity? portfolio? a.???Bart: desired expected return 16?% b.???Lisa: desired expected return 14?% c.???Maggie: desired expected return 12?% a.??The combination of these two assets that will give Bart an expected return of 16?% is nothing?% in bonds and nothing?% in stocks.???(Round both answers to two decimal? places.)

** I need the % in bonds and stocks rounded to two decimal places

Explanation / Answer

Expected return = Weight average of the return of individual components of portfolio.

E[R] = W1 R1 + W2 R2 + ....... + Wn Rn

There are two portfolios now, bond portfolio and stock protfolio, assume Wb is weight of bond portfolio. So the weight of stock protfoliowill be 1 - Wb

a) Bart, required return = 16%

16% = 6.5% * Wb + 16.6% * (1 - Wb)

16% = 6.5% * Wb + 16.6% - 16.6% * Wb

0.6% = 10.1% * Wb

Wb = 5.94% --> Weight of Bonds

Weight of stocks = 1- 5.94% = 94.06%

b) Lisa, required return = 14%

14% = 6.5% * Wb + 16.6% * (1 - Wb)

14% = 6.5% * Wb + 16.6% - 16.6% * Wb

2.6% = 10.1% * Wb

Wb = 25.74% --> Weight of Bonds

Weight of stocks = 1- 25.74% = 74.26%

a) Maggie, required return = 12%

12% = 6.5% * Wb + 16.6% * (1 - Wb)

12% = 6.5% * Wb + 16.6% - 16.6% * Wb

4.6% = 10.1% * Wb

Wb = 45.54% --> Weight of Bonds

Weight of stocks = 1- 45.54% = 54.46%

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