does this look correct
17. Using CAPM. A stock has a beta of 1.15 and an expected return of

10.4 percent. A risk-free asset currently earns 3.8 percent.

a. What is the expected return on a portfolio that is equally invested in the two assets?

0.5(10.4) + 0.5(3.8)

7.1%

b. If a portfolio of the two assets has a beta of .7, what are the portfolio weights?

           As the beta of the risk free asset is zero, whereas the beta of the other being 1.15, the portfolio weights of the other asset can be determined as 0.7 divided by 1.5 which is 61%. The weights are:

Risk Free Asset = 39%

Other Asset = 61%

c. If a portfolio of the two assets has an expected return of 9 percent, what is its beta?

           (Bp/1.15)

           Bp = (5.2/6.6)

           Bp = 0.906

d. If a portfolio of the two assets has a beta of 2.3, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.

           As the beta of the risk free asset is zero, whereas the beta of the other being 1.15, the portfolio weights of the other asset can be determined as 2.3 divided by 1.15 which is 200%. The weights are Risk Free Asset = 200% and Other Assets = -100%. The portfolio represents that amount has been borrowed through risk free assets at 3.8% and invested in the other asset at 11.39%

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