Asset W has an expected return of 13.75 percent and a beta of 1.4. If the risk-f
ID: 2646667 • Letter: A
Question
Asset W has an expected return of 13.75 percent and a beta of 1.4. If the risk-free rate is 4.65 percent, complete the following table for portfolios of Asset W and a risk-free asset.
Asset W has an expected return of 13.75 percent and a beta of 1.4. If the risk-free rate is 4.65 percent, complete the following table for portfolios of Asset W and a risk-free asset.
Percentage of Portfolio Portfolio Portfolio in Asset W Expected Return Beta 0% % 25 % 50 % 75 % 100 % 125 % 150 %Explanation / Answer
Beta of Risk free Asset is 0 & total weight of portfolio is always 1.
Portfolio weight
Portfolio Expected return
Portfolio Beta
Risk free asset
Asset W
Risk free Asset
Asset W
Total
Risk free Asset
Asset W
Total
1-(A)
(A)
4.65*1-(A)
13.75*(A)
Beta=0
Beta=1.4
Beta *1-(A)
Beta *(A)
1
0
4.65
0.00
4.65
0
0.00
0.00
0.75
0.25
3.49
3.44
6.93
0
0.35
0.35
0.5
0.5
2.33
6.88
9.20
0
0.70
0.70
0.25
0.75
1.16
10.31
11.48
0
1.05
1.05
0
1
0.00
13.75
13.75
0
1.40
1.40
-0.25
1.25
-1.16
17.19
16.03
0
1.75
1.75
-0.5
1.5
-2.33
20.63
18.30
0
2.10
2.10
Beta of Risk free Asset is 0 & total weight of portfolio is always 1.
Portfolio weight
Portfolio Expected return
Portfolio Beta
Risk free asset
Asset W
Risk free Asset
Asset W
Total
Risk free Asset
Asset W
Total
1-(A)
(A)
4.65*1-(A)
13.75*(A)
Beta=0
Beta=1.4
Beta *1-(A)
Beta *(A)
1
0
4.65
0.00
4.65
0
0.00
0.00
0.75
0.25
3.49
3.44
6.93
0
0.35
0.35
0.5
0.5
2.33
6.88
9.20
0
0.70
0.70
0.25
0.75
1.16
10.31
11.48
0
1.05
1.05
0
1
0.00
13.75
13.75
0
1.40
1.40
-0.25
1.25
-1.16
17.19
16.03
0
1.75
1.75
-0.5
1.5
-2.33
20.63
18.30
0
2.10
2.10