Final answer:
The expected rate of return on the portfolio is calculated using the Capital Asset Pricing Model (CAPM), which takes into account the weights of the stock and risk-free asset in the portfolio. With the given beta, expected stock return, and risk-free rate, the portfolio's expected return comes out to be approximately 9.41 percent.
Step-by-step explanation:
The question asks for the expected rate of return on a portfolio with a specific beta, consisting of a stock and a risk-free asset. To calculate this, we can use the Capital Asset Pricing Model (CAPM). The stock has a beta of 1.10 and an expected return of 12.11%, and the risk-free rate is 3.2%. According to the CAPM, the expected return of a portfolio (E(Rp)) is the weighted average of the expected returns of its components.
Given a portfolio beta of 0.80, we calculate the weights of the stock and the risk-free asset in the portfolio, then use the weights to calculate the portfolio's expected return. The beta of the portfolio is a weighted average of the betas of its parts, with the equation being 0.80 = weight(stock) * 1.10 + weight(risk-free asset) * 0. Since the risk-free asset's beta is 0, the weight of the stock in the portfolio is 0.80 / 1.10.
Now, we find out the expected return on the portfolio using the weights and the returns of the individual assets: E(Rp) = weight(stock) * E(Rstock) + weight(risk-free) * R(risk-free). Substituting the values and solving gives us the portfolio's expected return. After performing the calculations, we find that the expected return on the portfolio is approximately 9.41 percent, which is the correct answer choice from the given options.