Question

A stock has a beta of 0.9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent. a. What is the expected return on a portfolio that is equally invested in the two assets?

Answer 1

Answer:

6.5%

Explanation:

Data given in the question

Beta of the stock = 0.9

Expected return = 9%

A risk-free asset = 4%

By considering the above information, the expected return on a portfolio is

= Risk - free asset × equally basis  + expected rate of return × equally basis

= 4% × 50% + 9% × 50%

= 2% + 4.5%

= 6.5%

Since we have to find out the expected return on equally invested so we considered the risk free asset and the expected rate of return

Therefore we ignored the beta of the stock