Answer: 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%
