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#19 We have the following data: BETA 1.23 ER Individual Stock 11.70% Risk-Free Rate 3.50% Let's...

#19
We have the following data:
BETA 1.23
ER Individual Stock 11.70%
Risk-Free Rate 3.50%
Let's say a portfolio was two equally divided assets. What is the Expected Return of the Portfolio?
If the Portfolio had a BETA of .7, what are the portfolio weights?
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Answer #1

Portfolio ret is weighted avg ret of securities in that portfolio.

Security Weight ret Wtd Ret
Stock 0.5 11.70% 5.85%
Risk Free Asset 0.5 3.50% 1.75%
Portfolio Ret 7.60%

Weight of STock = Portfolio Beta / Stock beta

= 0.7 / 1.23

= 0.5691 i.e 56.91%

Weight in Risk free Asset is 1 - Weight of stock

= 1 - 0.5691

= 0.4309 i.e 43.09%

Pls comment, if any further assistance is required

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