Question

A stock has a beta of 1.24 and an expected return of 12.2 percent. A risk-free asset currently earns 4 percent. What is the expected return on a portfolio that is equally invested in the two assets?

Question 31 options:

	1) 4.00 percent.
	2) 8.10 percent.
	3) 10.04 percent.
	4) 12.20 percent.
	5) 16.20 percent

Question 32 (2.5 points)

Using information from the previous question, what is the weight of the stock if a portfolio of the two assets has a beta of 0.84?

Question 32 options:

	1) 0.323
	2) 0.50
	3) 0.677
	4) 0.752
	5) 1.00

Answer 1

Expected return on portfolio = Expected return on portfolio = Expected return on portfolio = Sum of (Expected return of stock * weight of stock) (12.2 *0.5) +(4 *0.5) 8.10% Beta of portfolio = Sum of (beta of stock * weight of stock) Let say, weight of stock is X Beta of Risk free security is always 0 0.84 = 0.84 = X = So, weight of stock is= (1.24*X) +(0*(1-x) 1.24% 0.677 0.677