Question

Asset W has an expected return of 13.75 percent and a beta of 1.4. If the risk-free rate is 4.65 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your portfolio expected return answers as a percent rounded to 2 decimal places, e.g., 32.16. Enter your portfolio beta answers rounded to 3 decimal places, e.g., 32.161.)

Answer 1

To complete the table for portfolios of Asset W and a risk-free asset, calculate the portfolio expected return and beta using the weight of Asset W and the risk-free asset.

Step-by-step explanation:

To complete the table for portfolios of Asset W and a risk-free asset, we need to calculate the portfolio expected return and portfolio beta. Let's assume the weight of Asset W is x and the weight of the risk-free asset is 1 - x.

Portfolio Expected Return = (Weight of Asset W * Expected Return of Asset W) + (Weight of risk-free asset * Risk-Free Rate)

Portfolio Beta = (Weight of Asset W * Beta of Asset W)

For example, if we choose x = 0.5, the portfolio expected return would be (0.5 * 13.75%) + (0.5 * 4.65%) = 9.20% + 2.33% = 11.53% (rounded to 2 decimal places) and the portfolio beta would be (0.5 * 1.4) = 0.70 (rounded to 3 decimal places).