A stock has a beta of 1.1 and an expected return of 15 percent. A risk-free asset

Question:

A stock has a beta of 1.1 and an expected return of 15 percent. A risk-free asset currently earns 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 .6, 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 2.20, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Fundamentals Of Corporate Finance

ISBN: 9780072553079

6th Edition

Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan

See More Books

Question Posted: Oct 03, 2023 12:34 PM

See More Questions

Using CAPM: A stock has a of 1.2. The equity risk premium is 6 percent and the risk free rate is 2 percent. What is the rate of return required by investors in the stock? Question 2 4.1.b - using...
Your portfolio consists of 250 shares of Stock K with a current market price of $40 per share, 150 shares of Stock Q with a current market price of $25 per share and $8,000 invested in the risk-free...
A stock has a beta of 1.35 and an expected return of 16%. A risk-free asset currently earns 4.8%. 1. What is the expected return on a portfolio that is equally invested in the two assets? 2. If a...
explain the term " system development" and describe the steps involved in system development
Bird-Brain, Inc., experienced four situations for its supplies. Compute the amounts that have been left blank for each situation. For situations 1 and 2, journalize the needed transaction. Consider...
Write a shell script that produces a file of sequential numbers by reading the last number in the file, adding 1 to it, and then appending it to the file. Run one instance of the script in the...
Consider a market with two securities, one of them risk free with rate of return $R$, and three future states. Suppose that the risky security has a present value $S_{1}$ and can take three...
American Steel Corp. acquired the following securities in 2011: At the beginning of 2011, American Steel had a zero balance in each of its market adjustment accounts. 1. What entry or entries would...
A call center has four categories of employees, each paid a particular wage. Managers are paid $25 an hour, clerks are paid $15 an hour, technicians are paid $20 an hour, and administrative...
You have $100,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of...
A stock has an expected return of 14 percent, a beta of 1.6, and the expected return on the market is 11 percent. What must the risk-free rate be?
In the use of software over the Internet, what are the two main security issues that must be considered?
A machine cost 40,000 on 1 January 2016. The reducing balance depreciation method is used at 25 per cent per annum. Year end is 31 December. During 2018, it was decided that a straight line method...
(a) Businesses often create an allowance for doubtful debts. (1) Of which concept (or convention) is this an example? Explain your answer. (2) What is the purpose of creating an allowance for...
Black and Blue Ltd depreciates its forklift trucks using a reducing balance rate of 30 percent. Its accounting year end is 30 September. On 30 September 2017, it owned four forklift trucks: (A)...
A company maintains its non-current assets at cost. A provision for depreciation account is used for each type of asset. Machinery is to be depreciated at the rate of 15 per cent per annum, and...
A company which makes up its financial statements annually to 31 December, provides for depreciation of its machinery at the rate of 12 per cent per annum using the reducing balance method. On 31...
What are the objectives of governmental reporting?
As you rewrite these sentences, replace the cliches and buzzwords with plain language (if you don't recognize any of these terms, you can find definitions online): a. Being a jack-of-all-trades, Dave...
McKee kin Corp. has a project with the following cash flows: What is the IRR of the project? What is happening here? Year Cash Flow S 20,000 2 -26,000 13,000
NPV and IRR Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: All cash flows will occur in Erewhon and are expressed in dollars. In...
Opportunity Cost In the context of capital budgeting, what is an opportunity cost?
Write out and solve the formula to value a bond. The bond's attributes are coupon rate of 3.75%, semi-annual interest payments, 3 years to maturity and the current return for 3 year paper is 2.875%
Caterpillar USA needs to accumulate $7.5 million to retire a bond issue that matures in 5 years. The firm's manufacturing division can contribute $150,000 per quarter for the next 5 years to an...
Otto Enterprises issued 15-year bonds with a coupon of 8 percent two years ago. The bonds have a par value of $1,000 and make semiannual coupon payment. What is the price of these bonds if the yield...

A stock has a beta of 1.1 and an expected return of 15 percent. A risk-free asset

Question:

Step by Step Answer:

a Expected return on a portfolio that is equally invested in the two assets To calculate the expected return on a portfolio we need to take a weighted average of the expected returns of the individual ...View the full answer

Fundamentals Of Corporate Finance

Students also viewed these Business questions