17. Using CAMP [LO4] A stock has a beta of 1.35 and an expected return of 16 per

ID: 2672011 • Letter: 1

Question

17. Using CAMP [LO4] A stock has a beta of 1.35 and an expected return of 16 percent. A risk free asset currently earns 4.8 percent.

a. What is the expected return on a porfolio that is equally invested in the two assets?

b. If a portfolio of the two assets has a beta of .95 what are the portfolio weights?

c. If a portfolio of the two assets has an expected return of 8 percent, what is its beta?

d. If a portfolio of the two assets has a beta of 2.70, what are the portfolio weights?

How do you interpret the weights for the assets in this case? Explain

a. and c. are incorrect. He calculated the Market Rate wrong. 16% is the expected return for the stock, not the market rate.

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