Question

Elle holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock’s beta, is listed in the following table:

Stock Investment Beta    Standard Deviation

Omni Consumer Products Co. (OCP) $3,500    0.90 15.00%

Kulatsu Motors Co. (KMC)    $2,000 1.70 11.00%

Water and Power Co. (WPC)    $1,500    1.10    18.00%

Mainway Toys Co. (MTC)    $3,000    0.50 25.50%

Suppose all stocks in Elle’s portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?

Kulatsu Motors Co.

Water and Power Co.

Mainway Toys Co.

Omni Consumer Products Co.

Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk?

Kulatsu Motors Co.

Omni Consumer Products Co.

Mainway Toys Co.

Water and Power Co.

If the risk-free rate is 4% and the market risk premium is 5.5%, what is Elle’s portfolio’s beta and required return? Fill in the following table:

   Beta Required Return

Elle's portfolio: ____    ____________

Answer 1

Calculation is given in the below attached image

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