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B. A stock has a beta of 1.2 and an expected return of 17 percent. A risk-free asset currently earns 5.1 percent. The beta of
B. A stock has a beta of 1.2 and an expected return of 17 percent. A risk-free asset currently earns 5.1 percent. The beta of a portfolio comprised of these two assets is 0.85. What percentage of the portfolio is invested in the stock? C. What is the expected return and variance on a portfolio which is invested 25 percent in stock A, 55 percent in stock B, and the remainder in stock C? State of Economy Boom Probability of State of Economy 5% Returns if State Occurs Stock A Stock B Stock C 19% 9% 6% Normal 45% 11% 8% 13% Recession 50% -23% 5% 25%
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