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# Expected Return and Risk-free Weight

A stock has a beta of 1.20 and an expected return of 14 percent. A risk-free asset currently earns 3.0 percent.

a. What is the expected return on a portfolio that is equally invested in the two assets? (Round your answer to 2 decimal places. (e.g., 32.16))

Expected return %

b. If a portfolio of the two assets has a beta of 0.72, what are the portfolio weights? (Round your answer to 4 decimal places. (e.g., 32.1616))

Weight of stock
Risk-free weight

c. If a portfolio of the two assets has an expected return of 10 percent, what is its beta? (Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161))

Beta

d. If a portfolio of the two assets has a beta of 2.40, what are the portfolio weights? (Negative amount should be indicated by a minus sign.)

Weight of stock
Risk-free weight.

#### Solution Preview

Recall that the portfolio beta and expected return are linear, that means it is a weighted average of the betas (or expected returns) of assets. Also, risk free assets have beta = 0. ...

#### Solution Summary

The solution discusses the expected return and return-free weight.

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