A stock has a beta of 1.26 and an expected return of 12.4 percent. A risk-free a

Question

A stock has a beta of 1.26 and an expected return of 12.4 percent. A risk-free asset currently earns 4.1 percent.

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).)

If a portfolio of the two assets has a beta of 0.86, what are the portfolio weights? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

If a portfolio of the two assets has an expected return of 11.6 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 2.46, 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).)

A stock has a beta of 1.26 and an expected return of 12.4 percent. A risk-free asset currently earns 4.1 percent.

Explanation / Answer

A stock has a beta of 1.26 and an expected return of 12.4 percent. A risk-free asset currently earns 4.1 percent.

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 of your portfolio = Expected return of Stock * Weight of Stock + Expected return of risk-free asset * Weight of risk-free asset

Expected return of your portfolio = 12.4*0.5 + 4.1*0.5

Expected return of your portfolio = 8.25

If a portfolio of the two assets has a beta of 0.86, what are the portfolio weights? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

Beta of Portfolio = Beta of Stock * Weight of Stock + Beta of risk-free asset * (1-Weight of Stock )

0.86 = 1.26*Weight of Stock + 0*(1-Weight of Stock )

Weight of Stock = 0.86/1.26

Weight of Stock = 0.6825

Weight of the risk-free asset = 1- 0.6825 = 0.3175

If a portfolio of the two assets has an expected return of 11.6 percent, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Expected return of your portfolio = Expected return of Stock * Weight of Stock + Expected return of risk-free asset * Weight of risk-free asset

11.6 = 12.4 *Weight of Stock + 4.1*(1-Weight of Stock)

11.6 = 12.4Weight of Stock + 4.1 - 4.1Weight of Stock

Weight of Stock = (11.6-4.1)/(12.4-4.1)

Weight of Stock= 0.9036

Beta of Portfolio = Beta of Stock * Weight of Stock + Beta of risk-free asset * (1-Weight of Stock )

Beta of Portfolio = 1.26*0.9036 + 0*(1-0.9036)

Beta of Portfolio = 1.14

If a portfolio of the two assets has a beta of 2.46, 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).)

Beta of Portfolio = Beta of Stock * Weight of Stock + Beta of risk-free asset * (1-Weight of Stock )

2.46 = 1.26*Weight of Stock + 0*(1-Weight of Stock )

Weight of Stock = 2.46/1.26

Weight of Stock = 1.9524

Weight of the risk-free asset = 1- 1.9524

Weight of the risk-free asset = - 0.9524

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).)

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