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Using CAPM A stock has a beta of 1.15 and an expected return of 11.4 percent. A risk-free asset currently earns 3.5 percent. a. What
Using CAPM
A stock has a beta of 1.15 and an expected return of 11.4
percent. A risk-free asset currently earns 3.5 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 2.30, what are the portfolio
weights? How do you interpret the weights for the two assets in this
case? Explain.
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