Stock J has a beta of 1.2 and an expected return of 13.16 percent, while stock K has a beta of...

Question:

Stock J has a beta of 1.2 and an expected return of 13.16 percent, while stock K has a beta of 0.75 and an expected return of 10.1 percent. You want a portfolio with the same risk as the market.

a. What is the portfolio weight of each stock?

b. What is the expected return of your portfolio?

Portfolio Weight and Return:

In finance, a portfolio is a collection of assets with different risk and returns characteristics. An investor could reduce exposures to non-systematic risks by diversifying a portfolio. The expected return on a portfolio is the weighted average of returns on assets in the portfolio.

Answer and Explanation:

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a. The weight on stock J is 55.56%, and the weight on stock J is 44.44%.

Denote the weight on stock J by {eq}P{/eq}, then the weight on stock K is ...

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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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