Question: Using CAPM. A stock has a beta of 1.23 and an expected return of 11.7 percent. A risk-free asset currently earns 3.5 percent.
a. What is the expected return on a portfolio that is equally invested in the two assets?
b. If a portfolio of the two assets has a beta of .7, what are the portfolio weights?
c. If a portfolio of the two assets has an expected return of 9 percent, what is its beta?
d. If a portfolio of the two assets has a beta of 2.46, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.