1. 20.

Using CAPM [LO 13.4] Lurnea Constructions has a beta of 1.12 and an expected return of 10.8 per cent. A risk-free asset currently earns 2.7 per cent.

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

2. If a portfolio of the two assets has a beta of 0.92, what are the portfolio weights?

3. If a portfolio of the two assets has an expected return of 9 per cent, what is its beta?

4. If a portfolio of the two assets has a beta of 2.24, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.