Question

Consider a portfolio consisting of the following three stocks:

	Portfolio Weight	Volatility	Correlation with the Market Portfolio
HEC corporation	0.27	13%	0.37
Green Midget	0.39	29%	0.64
AliveAndWell	0.34	12%	0.53

The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%

a. Compute the beta and expected return of each stock. (Round to two decimal places.)

b. Using your answer from part a, calculate the expected return of the portfolio.

The expected return of the portfolio is _______%. (Round to two decimal places.)

c. What is the beta of the portfolio?

The beta of the portfolio is_______ . (Round to three decimal places.)

d. Using your answer from part c, calculate the expected return of the portfolio and verify that it matches your answer to part b.

The expected return of the portfolio is________ %. (Round to two decimal places.)

Answer 1