Asset W has an expected return of 13.85 percent and a beta of 1.42. If the risk-
ID: 2751552 • Letter: A
Question
Asset W has an expected return of 13.85 percent and a beta of 1.42. If the risk-free rate is 4.67 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).) Percentage of Portfolio Portfolio Portfolio in Asset W Expected Return Beta 0% % 25 % 50 % 75 % 100 % 125 % 150 %
Explanation / Answer
ERw= 13.85%
Bw= 1.42
Rf = 4.67%
Portfolio return = Ww x ERw + (1-Ww)x Rf
Portfolio Beta = Ww x Bw
Here Ww is weight of asset W.
% of Asset W
Expected return
Beta
0%
13.85% x 0 + (1-0)x4.67% = 4.67%
0x1.42 =0
25%
13.85% x 0.25 + (1-0.25)x4.67% = 6.965%
0.25 x1.42=0.355
50%
13.85% x 0.50 + (1-0.50)x4.67% = 9.26%
0.5 x1.42= 0.71
75%
13.85% x 0.75 + (1-0.75)x4.67% =11.555%
0.75 x1.42 =1.065
100%
13.85% x 1 + (1-1)x4.67% = 13.85%
1x1.42 =1.42
125%
13.85% x 1.25 + (1-1.25)x4.67% = 16.145%
1.25 x1.42 =1.775
150%
13.85% x 1.5 + (1-1.5)x4.67% = 18.44%
1.50 x 1.42= 2.13
% of Asset W
Expected return
Beta
0%
13.85% x 0 + (1-0)x4.67% = 4.67%
0x1.42 =0
25%
13.85% x 0.25 + (1-0.25)x4.67% = 6.965%
0.25 x1.42=0.355
50%
13.85% x 0.50 + (1-0.50)x4.67% = 9.26%
0.5 x1.42= 0.71
75%
13.85% x 0.75 + (1-0.75)x4.67% =11.555%
0.75 x1.42 =1.065
100%
13.85% x 1 + (1-1)x4.67% = 13.85%
1x1.42 =1.42
125%
13.85% x 1.25 + (1-1.25)x4.67% = 16.145%
1.25 x1.42 =1.775
150%
13.85% x 1.5 + (1-1.5)x4.67% = 18.44%
1.50 x 1.42= 2.13