I. Asset W has an expected return of 10.6 percent and a beta of 1.40. If the ris
ID: 2777359 • Letter: I
Question
I. Asset W has an expected return of 10.6 percent and a beta of 1.40. If the risk-free rate is 3.6 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.Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.)
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Calculate the expected return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
I. Asset W has an expected return of 10.6 percent and a beta of 1.40. If the risk-free rate is 3.6 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.Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.)
Explanation / Answer
Expected return of the portfolio can be calculated as
Re = WA * EA + WB * EB
Here A and B are 2 assets in the portfolio
W is the weightage and E is the return of the asset.
Portfolio Beta can be calculated as
Beta= WA * BetaA+ WB * BetaB
Here A and B are 2 assets in the portfolio
W is the weightage and Beta is the respective asset Beta.
Table below shows the portfolio return and beta
Slope of the graph plotted with Returns on the x-axis and Beta on the y-axis, can be calculated as
=SLOPE(C1:C7,D1:D7) = 20
II. Expected Return = (0.31 * 0.16)+ (0.69 * 0.22) = 0.2014 = 20.14%
% of Portfolio in Asset W % of Risk free asset Portfolio Expected Return Portfolio Beta 0% 100% 3.600% 0.00 25% 75% 5.350% 0.35 50% 50% 7.100% 0.70 75% 25% 8.850% 1.05 100% 0% 10.600% 1.40 125% -25% 12.350% 1.75 150% -50% 14.100% 2.10