Asset W has an expected return of 13.85 percent and a beta of 1.42. If the risk-
ID: 2751998 • 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
Percentage of portfolio in asset W
Portfolio Expected return
Portfolio beta
0%
4.67%
0
25%
6.97%
0.355
50%
9.26%
0.71
75%
11.56%
1.065
100%
13.85%
1.42
1.
Portfolio expected return = Expected return of risk free asset = 4.67%
Portfolio beta = Beta of risk free asset = 0
2.
Portfolio expected return = (13.85%*.25) + (4.67% * .75) = 6.97%
Portfolio beta = (1.42 * 0.25) + ( 0 * 0.75) = 0.355
3.
Portfolio expected return = (13.85%*.50) + (4.67% * .50) = 9.26%
Portfolio beta = (1.42 * 0.50) + ( 0 * 0.50) = 0.71
4.
Portfolio expected return = (13.85%*.75) + (4.67% * .25) = 11.56%
Portfolio beta = (1.42 * 0.755) + ( 0 * 0.25) = 1.065
5.
Portfolio expected return = expected return of asset W = 13.85%
Portfolio beta = Beta of asset W = 1.42
Percentage of portfolio in asset W
Portfolio Expected return
Portfolio beta
0%
4.67%
0
25%
6.97%
0.355
50%
9.26%
0.71
75%
11.56%
1.065
100%
13.85%
1.42