Question

A stock has a beta of 1.21 and an expected return of 11.9 percent. A risk-free...

A stock has a beta of 1.21 and an expected return of 11.9 percent. A risk-free asset currently earns 3.85 percent.

a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected return             %

b. If a portfolio of the two assets has a beta of .81, what are the portfolio weights? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Weight of the stock
Weight of the risk-free asset

c. If a portfolio of the two assets has an expected return of 11.1 percent, what is its beta? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Beta            

d. If a portfolio of the two assets has a beta of 2.41, what are the portfolio weights? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Weight of the stock
Weight of the risk-free asset
0 0
Add a comment Improve this question Transcribed image text
Answer #1

part A:

Expected Ret = Weighted Avg ret

Partculars Weight Ret Wtd Ret
Stock 0.5 11.90% 5.95%
Rf Asset 0.5 3.85% 1.93%
Expected Ret 7.88%

Part B:

Portfolio Beta = Weighted in Stock * Stock Beta

Weight in Stock = Portfolio Beta / Stock Beta

= 0.81 / 1.21

= 0.67

Weigt in Risk Free Asset = 1 - 0.67

= 0.33

Part C:

Partculars Weight Ret Wtd Ret
Stock X 11.90% 0.119X
Rf Asset 1-X 3.85% 0.0385 - 0.0385X
Expected Ret 0.0805X + 0.0385

0.0805X + 0.0385 = 0.111

0.0805X = 0.111 - 0.0385

= 0.0725

X = 0.0725/ 0.0805

= 0.90

Portfolio Beta = Weight In Stcok * Stock Beta

= 0.9 * 1.21

= 1.089

Part D:

Weight In stock = Portfolio Beta / Stock Beta

= 2.41 / 1.21

= 2

Weight In stock = 2

Weight is Risk Free Asset = -1

Add a comment
Know the answer?
Add Answer to:
A stock has a beta of 1.21 and an expected return of 11.9 percent. A risk-free...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • A stock has a beta of 1.23 and an expected return of 12.1 percent. A risk-free asset currently earns 3.95 percent Requi...

    A stock has a beta of 1.23 and an expected return of 12.1 percent. A risk-free asset currently earns 3.95 percent Required: (a) 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 (b) If a portfolio of the two assets has a beta of 0.83, what are the portfolio weights? (Do not round...

  • A stock has a beta of 1.15 and an expected return of 11.4 percent. A risk-free...

    A stock has a beta of 1.15 and an expected return of 11.4 percent. A risk-free asset currently earns 3.5 percent. a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.If a portfolio of the two assets has a beta of 7 what are the portfolio weights? (Do not round intermediate calculations and...

  • A stock has a beta of 1.37 and an expected return of 13.5 percent. A risk-free...

    A stock has a beta of 1.37 and an expected return of 13.5 percent. A risk-free asset currently earns 4.65 percent. a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If a portfolio of the two assets has a beta of .97, what are the portfolio weights? (Do not round intermediate calculations...

  • A stock has a beta of 1.32 and an expected return of 13 percent. A risk-free...

    A stock has a beta of 1.32 and an expected return of 13 percent. A risk-free asset currently earns 4.4 percent. a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If a portfolio of the two assets has a beta of.92, what are the portfolio weights? (Do not round intermediate calculations and...

  • A stock has a beta of 1.05 and an expected return of 11 percent. A risk-free...

    A stock has a beta of 1.05 and an expected return of 11 percent. A risk-free asset currently earns 2.4 percent. a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If a portfolio of the two assets has a beta of.63, what are the portfolio weights? (Do not round intermediate calculations and...

  • answer all parts. A stock has a beta of 1.26 and an expected return of 12.4...

    answer all parts. 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. a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return ____ % ? b. If a portfolio of the two assets has a beta of .86, what are...

  • A stock has a beta of 1.12 and an expected return of 10.8 percent. A risk-free...

    A stock has a beta of 1.12 and an expected return of 10.8 percent. A risk-free asset currently earns 2.7 percent. a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If a portfolio of the two assets has a beta of .92, what are the portfolio weights? (Do not round intermediate calculations...

  • Problem 13-20 Using CAPM [LO4] A stock has a beta of 1.50 and an expected return...

    Problem 13-20 Using CAPM [LO4] A stock has a beta of 1.50 and an expected return of 14 percent. A risk-free asset currently earns 2 percent. a. 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 percent rounded to 2 decimal places, e.g., 32.16.) Expected return % b. If a portfolio of the two assets has a beta of .84, what are the...

  • 7 A stock has a beta of 1.12 and an expected return of 10.8 percent. A...

    7 A stock has a beta of 1.12 and an expected return of 10.8 percent. A risk-free asset currently earns 27 percent a. What is the expected return on a portfolio that is equally invested in the two assets? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g, 32.16.) b. If a portfollo of the two assets has a beta of .92, what are the portfolio welghts? (Do not round intermediate...

  • A stock has a beta of 1.0 and an expected return of 14 percent. A risk-free...

    A stock has a beta of 1.0 and an expected return of 14 percent. A risk-free asset currently earns 4.5 percent. a. What Is the expected return on a portfollo that Is equally Invested In the two assets? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Answer is complete and correct. Expected 9.25 return b. If a portfolio of the two assets has a beta of 0.85, what are the portfolo weights?...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT