A stock has a beta of 1.4, an expected return of 17.2 percent, and lies on...

A stock has a beta of 1.4, an expected return of 17.2 percent, and lies on the security market line. A risk-free asset is yielding 3.2 percent. You want to create a portfolio that is comprised of the stock and the risk free and will have a portfolio beta of 0.8. What is the expected return on this portfolio?

a) 12.33% b) 13.87% c) 11.20% d) 14.41%

Expert Solution

c) 11.20%

Step-1:Calculation of weight of both investment

Risk free asset as its name suggest has zero risk and hence has beta of 0.
Suppose, weight of risk free asset is "w" and so weight of stock is "1-w"



So, as per question,

Beta of portfolio	=	Sum of weighted beta of portfolio
0.8	=	(w0)+((1-w)1.4)
0.8	=	0+((1.4-1.4w)
0.8	=	1.4-1.4w
1.4w	=	0.6
w (Risk free asset)	=	0.4286
1-w (Stock)	=	0.5714

Step-2:Calculation of portfolio return

		Weight	Return
		a	b	a*b

Stock		0.5714	17.20%	9.83%
Risk free asset		0.4286	3.20%	1.37%

Portfolio return				11.20%

jeff jeffy answered 7 months ago

Question: Stock Y has a beta of 1.4 and an expected return of 15.1 percent. Stock...

Question: Stock Y has a beta of 1.4 and an expected return of 15.1 percent. Stock Z has a beta of .7 and an expected return of 8.6 percent. If the risk-free rate is 5.0 percent and the market risk premium is 6.5 percent, the reward-to-risk ratios for stocks Y and Z are 7.21% and 5.14 % percent, respectively. Since the SML reward-to-risk is ________ percent, Stock Y is undervalued and Stock Z is overvalued.

A stock has an expected return of 12.66 percent. The beta of the stock is 1.5...

A stock has an expected return of 12.66 percent. The beta of the stock is 1.5 and the risk-free rate is 5 percent. What is the market risk premium? (Answer in a percentage, but do not include the % sign and round to two decimal places, i.e., 18.35)

A stock has a beta of 1.5, an expected return of 15%, and lies on the security market line.

A stock has a beta of 1.5, an expected return of 15%, and lies on the security market line. A risk-free asset is yielding 3%. You want to create a $10,000 portfolio consisting of Stock A and the risk-free security such that the portfolio beta is .75. What rate of return should you expect to earn on your portfolio?Group of answer choices8 percent9 percent10 percent11 percent12 percent

7. Stock A has an expected return of 18.6 percent and a beta of 1.2. Stock...

7. Stock A has an expected return of 18.6 percent and a beta of 1.2. Stock B has an expected return of 15 percent and a beta of 0.9. Both stocks are correctly priced and lie on the Security market Line (SML). What is the reward-to-risk ratio for stock A?

Stock J has a beta of 1.47 and an expected return of 15.8 percent.

Stock J has a beta of 1.47 and an expected return of 15.8 percent. Stock K has a beta of 1.05 and an expected return of 11.9 percent. What is the risk-free rate if these securities both plot on the security market line?Group of answer choices2.15 percent4.41 percent3.88 percent3.34 percent4.68 percent

Expected return of stock Alpha is 8 percent and of stock Beta is12 percent. The...

Expected return of stock Alpha is 8 percent and of stock Beta is 12 percent. The standard deviation of the stocks are 13 percent and 18 percent respectively. The correlation between these two stocks is 0.4. If the portfolio manager has decided to invest all the funds that he holdsin some proportion in these two assets. The expected return ofthe portfolio based on this proportion is 11.5%. What are the weightsin each of the stocks? What isthe standard deviationofthisportfolio?

Expected return of stock Alpha is 8 percent and of stock Beta is 12 percent. The...

Expected return of stock Alpha is 8 percent and of stock Beta is 12 percent. The standard deviation of the stocks are 13 percent and 18 percent respectively. The correlation between these two stocks is 0.4. If the portfolio manager has decided to invest all the funds that he holds in some proportion in these two assets. The expected return of the portfolio based on this proportion is 11.5%. What are the weights in each of the stocks? What is...

Stock Y has a beta of 0.7 and an expected return of 8.29 percent. Stock Z...

Stock Y has a beta of 0.7 and an expected return of 8.29 percent. Stock Z has a beta of 1.8 and an expected return of 12.03 percent. What would the risk-free rate (in percent) have to be for the two stocks to be correctly priced relative to each other? Answer to two decimals.

Stock J has a beta of 1.35 and an expected return of 13.91 percent, while Stock...

Stock J has a beta of 1.35 and an expected return of 13.91 percent, while Stock K has a beta of .90 and an expected return of 10.85 percent. You want a portfolio with the same risk as the market. What is the portfolio weight of each stock? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) Stock J Stock K What is the expected return of your portfolio? (Do not round...

Stock X has a beta of 0.88 and an expected return of 10.8 percent. Stock Y...

Stock X has a beta of 0.88 and an expected return of 10.8 percent. Stock Y has a beta of 1.15 and an expected return of 13.1 percent. What is the risk-free rate of return assuming that both stock X and stock Y are correctly priced? Multiple Choice: 3.30 percent 2.06 percent 1.20 percent 3.50 percent 1.10 percent

Question