A stock has a beta of 1.2 and an expected return of 10%. The risk free asset currently earns 4%....

Question:

A stock has a beta of 1.2 and an expected return of 10%. The risk free asset currently earns 4%. If a portfolio of the two assets has an expected return of 8%, what is its beta? Please show your work.

Portfolio Return and Beta:

Portfolio return is the sum of individual returns with respect to the weights of the individual stocks in the portfolio. Similarly, Portfolio beta is the sum of individual betas with respect to the weights of the individual stocks in the portfolio.

Answer and Explanation:

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Weight of Stock x Expected Return + Weight of Risk free asset x Expected Return = Portfolio return

Let weight of stock be a

Weight of risk free...

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Portfolio Weight, Return & Variance: Definition & Examples

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Chapter 12 / Lesson 1
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A portfolio can be designed in several different ways. It is important to understand the basics of a portfolio before building and managing one. In this lesson, we will go over the weight, return, and variance of a portfolio.


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