Question

Currently there are two assets to invest. Asset A has a beta of 0.5 and an expected return of 0.04, and Asset B has a beta of 1.2 and an expected return of 0.16. These are the only two assets available for investing. Your task is to find what combination of these two assets will give you an portfolio expected return of 0.13

Answer 1

the percentage investment made in Asset A and asset B is 25% and 75% respectively

Step-by-step explanation:

The computation of the percentage investment made in Asset A and asset B

Here we assume the weight of asset A be x

And for Asset B it would be (1 - x)

Now

0.04x + 0.16 (1 - x) = 0.13

0.04x + 0.16 - 0.16x = 0.13

-0.12x = -0.03

x = 25%

(1 - x) = 0.75 or 75%

Therefore the percentage investment made in Asset A and asset B is 25% and 75% respectively