Using CAPM: A stock has a beta of 1.3 and an expected return of 15 percent. A risk free asset currently earns 5.5 percent.
- What is the expected return on a portfolio that is equally invested in the two assets?
- If a portfolio of the two assets has a beta of .8, what are the portfolio weights?
- If a portfolio of the two assets has an expected return of 12 percent, what is its beta?
- If a portfolio of the two assets has a beta of 2.60, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.