Different investor weights Two risky portfolios exist for in

Different investor

weights.

Two risky portfolios exist for? investing: one is a bond portfolio with a beta of

0.8 and an expected return of 7.47., and the other is an equity portfolio with a beta of

1.41 and an expected return of 14.5.

If these portfolios are the only two available assets for?investing, what combination of these two assets will give the following investors their desired level of expected? return? What is the beta of each?investor\'s combined bond and equity? portfolio?

a.???Bart: desired expected return 14%

b.???Lisa: desired expected return 12%

c.???Maggie: desired expected return 10%

a.??The combination of these two assets that will give Bart an expected return of 14%

is ___?% in bonds and ___?% in stocks. ?(Round both answers to two decimal? places.)

Solution

a. let the weight in bonds be w

w*7.47% + (1-w)*14.5% = 14%

% in bonds = 7.11%

% in equity = 92.89%

b. likewise

w*7.47% + (1-w)*14.5% = 12%

% in bonds = 35.56%

% in equity = 64.44%

c.

% in bonds = 64.01%

% in equity = 35.99%