Question
A stock has a beta of 1.14 and an expected return of 10.5 percent. A risk-free asset currently earns 2.4 percent. (a) What is the
A stock has a beta of 1.14 and an expected return of 10.5 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?
(b) If a portfolio of the two assets has a beta of .92, what are the portfolio weights?
(c) If a portfolio of the two assets has an expected return of 9 percent, what is its beta?
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| Stock E(R) | 10.50% |
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| Stock beta | 1.14 |
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| Risk-free return | 2.40% |
| a. | Weight of stock | 50.00% |
| b. | Portfolio beta | 0.92 |
| c. | Portfolio E(R) | 9.00% |
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| a. | Portfolio E(R) = |
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| b. | Weight of stock = |
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| Weight of risk-free = |
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| c. | Weight of stock = |
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| Portfolio beta = |
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International Financial Management
Authors: Jeff Madura
7th Edition
0324071744, 978-0324071740
