A stock has a beta of 1.40 and an expected return of 12 percent. A risk-free ass

Question

A stock has a beta of 1.40 and an expected return of 12 percent. A risk-free asset currently earns 3.8 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 0.91, 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 8 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 2.80, what are the portfolio weights? (Negative amount should be indicated by a minus sign.)

A stock has a beta of 1.40 and an expected return of 12 percent. A risk-free asset currently earns 3.8 percent.

Explanation / Answer

Formula: Return on a stock = risk free rate+beta*(market return - risk free rate)

= 3%+1.02*(12%-3%)

= 3%+1.02*9%

= 3%+9.18%

= 12.18%

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