What is the expected return on a portfolio that is equally invested in the two a

Question

What is the expected return on a portfolio that is equally invested in the two assets? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

If a portfolio of the two assets has a beta of 0.8, what are the portfolio weights?(Round your answers to 2 decimal places. Omit the "%" sign in your response.)

If a portfolio of the two assets has an expected return of 8 percent, what is its beta? (Round your answer to 2 decimal places.)

If a portfolio of the two assets has a beta of 1.80, what are the portfolio weights? (Negative amounts should be indicated by a minus sign. Omit the "%" sign in your response.)

Please give detailed solution. Not just answer. thanks

Explanation / Answer

a) The expected return of the portfolio shall be the weighted average Weight of Stock= 50% Return on the stock= 9% Weight of asset= 50% Return on the asset= 4% Thus, expected return on the portfolio= 0.50*9 + 0.50*4= 6.5% b) Beta of the portfolio is also weighted average Let weight of Stock be Ws and that of Asset be Wa Thus, portfolio Beta= Ws*0.9 + Wa*0 Thus, 0.8= 0.9Ws + 0 Therefore, Ws= 0.89 and Wa= 0.11 Thus, Weight of stock = 89% and Weight of asset= 11% c) The expected return of the portfolio shall be the weighted average Let weight of Stock be Ws and that of Asset be Wa Thus, expected return on the portfolio= Ws*9 + Wa*4 i.e 8= 9Ws + 4Wa 8= 9Ws + 4(1-Ws) 8= 9Ws - 4Ws + 4 8= 5Ws + 4 Thus, Ws= 80% and Wa= 20% Thus, portfolio Beta= Ws*0.9 + Wa*0= 80%*0.9 + 20%*0= 0.72 d) Beta of the portfolio is also weighted average Let weight of Stock be Ws and that of Asset be Wa Thus, portfolio Beta= Ws*0.9 + Wa*0 Thus, 1.8= 0.9Ws + 0 Therefore, Ws= 200% and Wa= -100% Thus, Weight of stock = 200% and Weight of asset= -100%

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