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Mr. Rakesh Jhunjhunwala has created a portfolio consisting of a stock and a risk-free asset. The...

Mr. Rakesh Jhunjhunwala has created a portfolio consisting of a stock and a risk-free asset. The stock’s expected return is 16% and beta is 1.2. The risk-free asset earns 5% rate of return. Suppose the beta of his portfolio is 0.75, what are the weights of the stock and the risk-free asset in his portfolio?
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1 The weight of the stock is 30% and the weight of the risk-free asset is 70%.
2 The weight of the stock is 37% and the weight of the risk-free asset is 63%.
3 The weight of the risk-free asset is 45% and the weight of the stock is 55%.
4 The weight of the risk-free asset is 37% and the weight of the stock is 63%.
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