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KonstantinChe [14]
3 years ago
6

A stock has a beta of 1.12 and an expected return of 10.8 percent. A risk-free asset currently earns 2.7 percent. a. What is the

expected return on a portfolio that is equally invested in the two assets?
Business
1 answer:
love history [14]3 years ago
8 0

Answer:

6.75%

Explanation:

Data provided in the question:

Beta of the stock = 1.12

Expected return = 10.8% = 0.108

Return of risk free asset = 2.7% = 0.027

Now,

Since it is equally invested in two assets

Therefore,

both will have equal weight = \frac{1}{2} = 0.5

Thus,

Expected return on a portfolio = ∑(Weight × Return)

= [ 0.5 × 10.8% ] + [ 0.5 × 2.7% ]

= 5.4% + 1.35%

= 6.75%

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