Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-blls provide a risk-free return of 5%. a. What would be the expected return and beta of portfolios constructed from these two assets with welghts in the S&P 500 of (1) 0; (1) 0.25; (IlI) 0.50; (Iv) 0.75; (v) 1.0? (Leave no cells blank - be certain to enter "O" wherever required. Do not round Intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) Expected Return Beta (i) % % % % (ii) 0.25 (ii) 0.50 (iv) 0.75 (v) 1.0 b. How does expected return vary with beta? (Do not round intermediate calculations.) % for a one unit increase in beta. by The expected return 33339
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-blls provide a risk-free return of 5%. a. What would be the expected return and beta of portfolios constructed from these two assets with welghts in the S&P 500 of (1) 0; (1) 0.25; (IlI) 0.50; (Iv) 0.75; (v) 1.0? (Leave no cells blank - be certain to enter "O" wherever required. Do not round Intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) Expected Return Beta (i) % % % % (ii) 0.25 (ii) 0.50 (iv) 0.75 (v) 1.0 b. How does expected return vary with beta? (Do not round intermediate calculations.) % for a one unit increase in beta. by The expected return 33339
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-bills provide a risk-free return of 5%.
a. What would be the expected returm and beta of portfolios constructed from these two assets with welghts in the S&P 500 of (1) 0; (iI)
0.25; () 0.50; (iv) 0.75; (V) 1.0? (Leave no cells blank - be certain to enter "O" wherever required. Do not round Intermedlate
calculations. Enter the value of Expected return as a percentage rounded to 2 declmal places and value of Beta rounded to 2
decimal places.)
Expected Return
Beta
(i)
(i)
(ii)
(v)
(v)
0.25
0.50
0.75
1.0
b. How does expected return vary with beta? (Do not round intermediate calculations.)
% for a one unit increase in beta.
by
The expected return
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Step 1
Given Information:
Expected return for beta value 1 is 14%
Risk free rate is 5%
Weights for two assets: 0, 0.25, 0.50, 0.75 and 1
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