A stock has a beta of 1.48 and an expected return of 17.3 percent. A risk-free asset currently earns 4.6 percent. If a portfolio of the two assets has a beta of .98, then the weight of the stock must be and the risk-free weight must be .

66% ; 34%

Explanation:

From the question, the following can be derived:

The stock beta value = 1.48

The stock expected return = 17.3%

The risk free asset return = 4.6%

The portfolio beta = 0.98

The risk free asset beta value = 0

Let the weight of the stock be represented as x

Hence, the risk free weight = 1 - x

portfolio beta = (stock weight × beta) + (risk free weight × beta)

0.98 = (x × 1.48)+[(1-X) × 0]

0.98 = 1.48x + 0

1.48x = 0.98

To get x, divide through by 1.48

x = 0.98/1.48

x = 0.66

x = 66%

Therefore, the risk free weight will be:

= 1 - 0.66

= 0.34

= 34%

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