Problem: A stock has a beta of 1.05 and an expected return of 19 percent. A risk-free asset currently earns 5.7 percent.
1) The expected return on a portfolio that is equally invested in the two assets is _______%. (Input answer as a percent rounded to 2 decimal places, without the percent sign.)
2) If a portfolio of the two assets has a beta of 0.75, the weight of the stock is _________% and the weight of the risk-free is _________% (Input answers as a percent rounded to 4 decimal places, without the percent sign).
3) If a portfolio of the two assets has an expected return of 7 percent, its beta is _________. (Round answer to 6 decimal places.)
4) If a portfolio of the two assets has a beta of 2.35, the weight of the stock is _________% and the weight of the risk-free is ________% (Input answers as a percent rounded to 2 decimal places, without the percent sign).
How do you interpret the weights for the two assets in this case? Explain.