Question: The current risk free rate is 4% and the expected risk premium on the market portfolio is 7%. An asset has a beta of

The current risk free rate is 4% and the expected risk premium

The current risk free rate is 4% and the expected risk premium on the market portfolio is 7%. An asset has a beta of 1.2. What is the expected return on this asset? Interpret the number 1.2. a. An asset has a beta of 0.6. What is the expected return on this asset? b. If we invest 2 of our money in the first asset and 2 of our money in the second, what is our portfolio beta and what is its expected return? c. Relative to the first asset our portfolio has a smaller expected return, why? d. Does this mean the first asset is better than the portfolio?

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