Question: he risk free rate is 4%, and the expected return on the market is 12%. There is also an asset X with a Beta of

he risk free rate is 4%, and the expected return on the market is 12%. There is also an asset X with a Beta of 1.5.What is the return on portfolio 1 consisting of 40% of asset X and the rest in an asset with no risk? What is the return on portfolio 2 which is equally weighted in the risk free asset, the market portfolio, and asset X?

Select one:

a. The E(R) on portfolio 1 is 13.6% and the E(R) on portfolio 2 is 10.67%

b. The E(R) on portfolio 1 is 16% and the E(R) on portfolio 2 is 8.8%

c. The E(R) on portfolio 1 is 8.8% and the E(R) on portfolio 2 is 16%

d. The E(R) on portfolio 1 is 16% and the E(R) on portfolio 2 is 8.8%

e. The E(R) on portfolio 1 is 8.8% and the E(R) on portfolio 2 is 10.67%

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

A flat piece of cast iron 100. mm wide and 150. mm long is to be milled with a feed rate of 200. mm/ minute with a depth of cut of 1.0 mm. The milling cutter rotates at 100. RPM, and is wider than...

The risk free rate is 4%, and the expected return on the market is 12%. What is the required return on portfolio consisting of 30% of an asset with a beta of 1.5 and the rest in an asset with no...

A corporation has 1 0 , 0 0 0 bonds outstanding with a 6 % coupon rate paid semi - annually, 8 years to maturity, a $ 1 , 0 0 0 face value, and a $ 1 , 1 0 0 market price. The company s 5 0 0 , 0 0 0...

A corporation has 10,000 bonds outstanding with a 6% annual coupon rate, 8 years to maturity, a $1,000 face value, and a $1,100 market price. The company's 500,000 shares of common stock sell for $25...

assume the risk free rate is 2% and the expected return on the market is 12%. what is the required rate of return on a stock with a beta of 1.1 ? State of Boom Normal 0 40 010 -107 Cooley Company's...

Suppose that the market portfolio is equally likely to increase by 25% or decrease by 15%. The stock of Alice Ltd goes up by 40% when the market goes up and goes down by 30% when the market goes...

Consider an investment that costs $100,000 and has a cash inflows of $25,000 every year for three years and then $30,000 for the final two years.(show how you got anwser for all) The required return...

You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows Portfolio proportions: Asset X = 40%, Asset Y = 25% and asset Z = 35% Beta: Asset X = 1.2 Asset Y = .96 and...

3 (1o points), MA's stock has a beta of 1.2. Suppose the riak fre ate is 4 ta of 1 .2. Suppose the risk free rate is 4%, and the expected return on the market is 11%. a. What is the required return...

1) Explain the difference between systematic and unsystematic risk? Which portfolio has the least unsystematic risk and why? a-500 Energy Stocks a-500 Energy Stocks b-50 Stocks (5 each from ten...

4. Hull Consultants, a famous think tank in the Midwest, has provided probaibility estimates for the four potential economic states for the coming year. The probability of a boom economy is 10%, the...

Premium Ltd, a South African-based MNC has US$200,000 receivables in 6 months' time and would like to hedge the value of the dollar receipts with currency options. The current spot exchange rate is...

In nature, substances often possess a crystalline structure. The basic component of a crystal is the unit cell, such as the rectangular parallelpiped illustrated in In the questions that follow,...

Find semiannual premium for whole life $ 8 0 0 0 0 face value age 4 0 rate 7 . 6 8 per 1 0 0 0 coverage

9. (15 points) A company is considering a new project that requires an investment of \$5 million. The project is expected to generate cash flows of $2 million in year 1,$3 million in year 2, and $4...

While trying to bring about transparency in the appraisal system and processes, is there a risk of violating confidentiality? How should Nitin bring in transparency without violating confidentiality?

Based on a review of literature on appraisal, examine the rationale and legitimacy of different systems of appraisal. Which one would you recommend for Systel?

How autonomous should the target be left after the merger deal?