Asset W has an expected return of 13.5 percent and a beta of 1.35. If the risk-f
ID: 2635966 • Letter: A
Question
Asset W has an expected return of 13.5 percent and a beta of 1.35. If the risk-free rate is 4.6 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your portfolio expected return answers as a percentage and round to 2 decimal places (e.g., 32.16). Round your portfolio beta answers to 3 decimal places (e.g., 32.161).)
Portfolio in Asset W
Expected Return
Beta
25
50
75
100
125
150
Percentage of Portfolio PortfolioPortfolio in Asset W
Expected Return
Beta
0% %Explanation / Answer
When the proportion of funds invested in stock W exceeds 1, the cash has to be withdrawn from the other investments(riskless portfolio)
Riskless portfolio has a beta of 0 so its contribution to the portfolio beta will be 0
% of funds in stock W Portfolio Expected Return Portfolio Beta 0% (0x13.5 + 1x4.6) = 4.6% (0x1.35 + 1x0) =0 25% (0.25x13.5 + 0.75x4.6) =6.825% (0.25x1.35) =0.337 50% (0.5x13.5 + 05x4.6) = 9.05% (0.5x1.35) +(0.5x0) = 0.675 75% (0.75x13.5 +0.25x4.6) = 11.275 (0.75x1.35) = 1.012 100% 13.5% 1.35 125% (1.25x13.5 + (-0.25x4.6) = 15.725% (1.25x1.35) = 1.687 150% (1.50x13.5) + (-0.5x4.6) = 17.95% (1.50x1.35) = 2.025