Question

Your investment club has only two stocks in its portfolio. $50,000 is invested in a stock...

Your investment club has only two stocks in its portfolio. $50,000 is invested in a stock with a beta of 0.8, and $30,000 is invested in a stock with a beta of 2.0. What is the portfolio's beta?

AA Corporation's stock has a beta of 1.1. The risk-free rate is 4%, and the expected return on the market is 13%. What is the required rate of return on AA's stock? Do not round intermediate calculations. Round your answer to two decimal places.

Homework Answers

Answer #1

Answer to Question 1:
Amount invested in Stock 1 = $50,000
Amount invested in Stock 2 = $30,000
Total Amount invested = $50,000 + $30,000 = $80,000

Weight of Stock 1 = $50,000 / $80,000
Weight of Stock 1 = 0.625

Weight of Stock 2 = $30,000 / $80,000
Weight of Stock 2 = 0.375

Portfolio Beta = (Weight of Stock 1 * Beta of Stock 1) + (Weight of Stock 2 * Beta of Stock 2)
Portfolio Beta = (0.625 * 0.8) + (0.375 * 2.0)
Portfolio Beta = 0.50 + 0.75
Portfolio Beta = 1.25

Answer to Question 2:
Required Return = Risk Free Rate + Beta * (Market Return – Risk Free Rate)
Required Return = 4.00% + 1.10 * (13.00% - 4.00%)
Required Return = 4.00% + 9.90%
Required Return = 13.90%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1a. Your investment club has only two stocks in its portfolio. $50,000 is invested in a...
1a. Your investment club has only two stocks in its portfolio. $50,000 is invested in a stock with a beta of 0.9, and $75,000 is invested in a stock with a beta of 1.3. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places. 1b. AA Corporation's stock has a beta of 0.4. The risk-free rate is 2%, and the expected return on the market is 12%. What is the required rate of...
1. Your investment club has only two stocks in its portfolio. $30,000 is invested in a...
1. Your investment club has only two stocks in its portfolio. $30,000 is invested in a stock with a beta of 0.5, and $45,000 is invested in a stock with a beta of 1.8. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places. 2. AA Corporation's stock has a beta of 0.8. The risk-free rate is 3%, and the expected return on the market is 11%. What is the required rate of...
Your investment club has only two stocks in its portfolio. $50,000 is invested in a stock...
Your investment club has only two stocks in its portfolio. $50,000 is invested in a stock with a beta of 0.9, and $75,000 is invested in a stock with a beta of 1.7. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.
If you have $30,000 invested in each of two stocks and $20,000 invested in each of...
If you have $30,000 invested in each of two stocks and $20,000 invested in each of another three stocks and the betas on the stocks above are 0.8, 1.1, 1.0, 1.2 and 1.4, respectively, what is the beta of your portfolio, and what is the required return on the portfolio if the risk-free rate is 4.6% and the return on the market portfolio is 10.4%? What are the risk premiums for the market and for your portfolio?
An individual has $30,000 invested in a stock with a beta of 0.4 and another $50,000...
An individual has $30,000 invested in a stock with a beta of 0.4 and another $50,000 invested in a stock with a beta of 2.2. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.
An individual has $50,000 invested in a stock with a beta of 0.5 and another $30,000...
An individual has $50,000 invested in a stock with a beta of 0.5 and another $30,000 invested in a stock with a beta of 2.4. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.
AA Corporation's stock has a beta of 0.9. The risk-free rate is 3%, and the expected...
AA Corporation's stock has a beta of 0.9. The risk-free rate is 3%, and the expected return on the market is 9%. What is the required rate of return on AA's stock? Do not round intermediate calculations. Round your answer to one decimal place.
A. You own a $20,000 portfolio that is invested in a risk-free security and Stock A....
A. You own a $20,000 portfolio that is invested in a risk-free security and Stock A. The beta of Stock A is 1.60 and the portfolio beta is 1.00. What is the amount of the investment in Stock A? B. Stock A has a beta of 2.0 and an expected return of 13.0 percent. Stock B has a beta of 1.12 and an expected return of 13.70 percent. At what risk-free rate would these two stocks be correctly priced?
You own a portfolio equally invested in a risk-free asset and two stocks. One of the...
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.2 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Beta   
You own a portfolio equally invested in a risk-free asset and two stocks. One of the...
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.15 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Beta            
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT