You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings:
Portfolio
Weightings
Asset Beta First Portfolio
Second Portfolio
A 2.20 12% 38%
B 0.80 12% 38%
C 0.55 38% 12%
D -1.30 38% 12%
a. What is the beta on each portfolio?
b. Which portfolio is riskier?
c. If the risk-free rate of interest were 3 percent and the market risk premium were 7 percent, what rate of return would you expect to earn from each of the portfolios?
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