A stock has a beta of 1.56 and an expected return of 17.3 percent.A risk-free asset currently earns 5.1 percent.If a portfolio of the two assets has a beta of 1.06,what are the portfolio weights?
A)Stock weight = 0.28; risk-free weight = 0.72
B)Stock weight = 0.032; risk-free weight = 0.68
C)Stock weight = 0.44; risk-free weight = 0.56
D)Stock weight = 0.68; risk-free weight = 0.32
E)Stock weight = 0.72; risk-free weight = 0.28

Question

Quizplus · Accepted Answer

β_P = 1.06 = x(1.56) + (1 - x)(0)x = 0.68Stock weight is 0.68 and the risk-free weight is 0.32

A Stock Has a Beta of 1