CoR Stock
Scenario |
Probability of Scenario |
Rate of Return |
Worst Case |
0.10 |
−11% |
Poor Case |
0.20 |
−4% |
Most Likely |
0.40 |
−2% |
Good Case |
0.20 |
8% |
Best Case |
0.10 |
14% |
1)
Expected return = Summation of [Probability*Rate of return]
Expected return = 0.10*(-11%) + 0.20*(-4%) + 0.40*(-2%) + 0.20*(8%) + 0.10*(14%)
Expected return = 0.3%
Standard deviation = Summation of [Probability*(Return-Expected return)^2]
Standard deviation = 0.10*(-11%-0.3%)^2 + 0.20*(-4%-0.3%)^2 + 0.40*(-2%-0.3%)^2 + 0.20*(8%-0.3%)^2 + 0.10*(14%-0.3%)^2
Standard deviation = 0.492%
2)
Weight of Flama stock this portfolio = 1.4/(1.4+0.6) = 70%
Weight of Blanca stock this portfolio = 0.6/(1.4+0.6) = 30%
Portfolio beta = Summation of [Weight*Stock Beta]
Portfolio beta = 0.7*1.2+0.3*0.8 = 1.08
Required return on the portfolio = Risk free rate + Beta*(Market risk premum)
Required return on the portfolio = 0.04+1.08*(0.05-0.04)
Required return on the portfolio = 5.08%
Get Answers For Free
Most questions answered within 1 hours.