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11 June, 09:31

A stock has a beta of 1.3 and an expected return of 12.8 percent. a risk-free asset currently earns 4.3 percent.

a. what is the expected return on a portfolio that is equally invested in the two assets

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  1. 11 June, 09:52
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    The expected return on this portfolio will be given by:

    E[P]=Rf + (E[Rm]-Rf) β

    Where:

    Rf=Risk Free interest rate

    Rm=Return on the market portfolio

    β = Market Beta

    The return on our portfolio will be:

    E[p]=0.043 + (0.128-0.043) 0.013

    =0.043+0.085*0.013

    =0.044105

    =4.4105%
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