The risk free rate is 4%, and the required return on the market is 12%. 1. What is the required return on an asset A with a beta of 1.5?2. What is the reward/risk ratio?3. What is the required return on a portfolio consisting of 40% of the asset above and the rest in an asset with an average amount of systematic risk?

required return 16%

risk/reward  8%

portfolio return 13.60%

Explanation:

Required return=risk-free rate+beta*(market return-risk free rate)

risk-free rate=4%

beta=1.5

market return=12%

required return=4%+1.5*(12%-4%)=16.00%

Reward/risk ratio=market return-risk free rate

reward/risk ratio=12%-4%=8%

Portfolio return=weight of the asset* required return on asset+weight of the rest of the portfolio*market return

weight of the asset=40%

required return=16%

weight of the rest of the portfolio=1-40%=60%

market return=12%

portfolio return=(40%*16%)+(60%*12%)=13.60%

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