Suppose that the S&P 500, with a beta of 1.0, has an expected return of 12% and

Question

Suppose that the S&P 500, with a beta of 1.0, has an expected return of 12% and T-bills provide a risk-free return of 3%.

What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) .25; (iii) .50; (iv) .75; (v) 1.0? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

expected return Beta

I ( 0)   

II ( .25)

III (.50)

IV (.75)

V (1.0)

Suppose that the S&P 500, with a beta of 1.0, has an expected return of 12% and T-bills provide a risk-free return of 3%.

Explanation / Answer

Expected Return on S & P 500 12% Beta of S&P500                               1.00 Expected return on treasury Bills 3% Beta of T Bills is 0                                    -   Statement showing computations Particulars Expected Return   Beta (i) 0 3%                           -   (ii) .25 5.25%                      0.25 (iii) .50 7.50%                      0.50 (iv) .75 9.75%                      0.75 (v) 1 12%                      1.00

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