# Question: A stock has a beta of 1 25 and an expected

A stock has a beta of 1.25 and an expected return of 14 percent. A risk-free asset currently earns 2.1 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 .93, 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 2.50, what are the portfolio weights?

How do you interpret the weights for the two assets in this case? Explain.

b. If a portfolio of the two assets has a beta of .93, 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 2.50, what are the portfolio weights?

How do you interpret the weights for the two assets in this case? Explain.

## Answer to relevant Questions

Asset W has an expected return of 12.8 percent and a beta of 1.25. If the risk-free rate is 4.1 percent, complete the following table for portfolios of Asset W and a risk-free asset. Illustrate the relationship between ...Suppose you observe the following situation:a. Calculate the expected return on each stock.b. Assuming the capital asset pricing model holds and Stock A’s beta is greater than Stock B’s beta by .25, what is the expected ...Mullineaux Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 5 percent, and the pretax ...Caughlin Company needs to raise $55 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital ...In the previous question, how would it affect your thinking to know that the company was incorporated about 10 years earlier, had only $186 million in revenues in 2010, and had never earned a profit? Additionally, the ...Post your question