Expert Answers

A stock has a beta of 0.8 and an expected return of 13 percent. A risk-free asset currently earns 4 percent.

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

b. If a portfolio of the two assets has a beta of 0.6, what are the portfolio weights?

c. If a portfolio of the two assets has an expected return of 11 percent, what is its beta?

d. If a portfolio of the two assets has a beta of 1.60, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain