Question:

Using CAPM.A stock has a beta of 1.15 and an expected return of 10.4 percent. A risk-free asset currently earns 3.8 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 .7, what are the portfolio weights?

c.If a portfolio of the two assets has an expected return of 9 percent, what is its beta?

d.If a portfolio of the two assets has a beta of 2.3, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.