Question

# #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?

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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