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.