A stock has a beta of 1.3 and an expected return of 12.8 percent. a risk-free asset currently earns 4.3 percent.

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

The expected return on this portfolio will be given by:

E[P]=Rf + (E[Rm]-Rf) β

Where:

Rf=Risk Free interest rate

Rm=Return on the market portfolio

β = Market Beta

The return on our portfolio will be:

E[p]=0.043 + (0.128-0.043) 0.013

=0.043+0.085*0.013

=0.044105

=4.4105%