Question 1

A stock has an expected return of 17.5% and a beta of 1.65. Another asset which is risk free is earning 3.25%

a)What is the expected return on a portfolio that is comprised of 1/2 the high-risk stock and 1/2 the risk free asset?

b)Calculate the weights of each of these if they are the only 2 holdings in a portfolio which has a beta of 1.00.

c)If the portfolio of these two holdings earned 10%, what would be the beta of the portfolio?