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.)

please provide the explanation as to how to get this answer?

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

Statement showing computations Particulars Expected Return   Beta Working notes = ER Working notes = Beta (i) 0 3%                          -   0*12% + 1*3% 0*1 + 1*0 (ii) .25 5.25%                      0.25 .25*12% + .75*3% .25*1 + .75*0 (iii) .50 7.50%                      0.50 .5*12% + .5*3% .5*1 + .5*0 (iv) .75 9.75%                      0.75 .75*12% + .25*3% .75*1 + .25*0 (v) 1 12%                      1.00 1*12% + 0*3% 1*1 + 0*0

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