Question
3. The Beta of a stock is 1.25, the expected return is 13.25%, and the risk-free asset pays 2.4%. a. Determine the expected return for
3. The Beta of a stock is 1.25, the expected return is 13.25%, and the risk-free asset pays 2.4%.
a. Determine the expected return for a portfolio invested equally in these two assets.
b. Is that possible for a portfolio composed of these two assets to have a Beta of 1.45? And a Beta of 0.95? What would be the weights of those assets in both situations (if possible)?
c. If a portfolio composed of the two assets has an expected return of 11%, what is the Beta of this portfolio?
d. If a Beta of a portfolio composed of these two assets is 2.15, what are the weights of the assets on this portfolio? Explain how you would interpret the weights of them in this case.
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