Problem:
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.
Required:
Question 1: What is the expected return on a portfolio that is equally invested in the two assets?
Question 2: If a portfolio of the two assets has a beta of 0.9, what are the portfolio weights?
Question 3: If a portfolio of the two assets has an expected return of 12 percent, what is its beta?
Question 4: If a portfolio of the two assets has a beta of 2.5, what are the portfolio weights?
Note: Please explain comprehensively and give step by step solution.