Question

We have the following investments in our portfolio:

Investment                        Amount                              Expected Return              Beta

A Stock                               $2,000                                 8%                                        .80

B Stock                               $2,500                                 12%                                     .95

C Stock                               $2,500                                 14%                                     1.20

D Stock                               $3,000                                 16%                                     1.50

What is the expected return on this portfolio? What is the beta of this portfolio? Does this portfolio have more or less systematic risk than an average asset? Please show your calculations.

Answer 1

Investment	Amount	Weight	Expected Return	Beta	Proportional expected return	Proportional Beta
		A	B	C	D = A x B	E = A x C
A Stock	$2,000	20%	8%	0.8	1.60%	0.16
B Stock	$2,500	25%	12%	0.95	3.00%	0.2375
C Stock	$2,500	25%	14%	1.2	3.50%	0.3
D Stock	$3,000	30%	16%	1.5	4.80%	0.45
Total	$10,000	100%			12.90%	1.1475
Portfolio Expected Return			12.90%
Portfolio Beta			1.1475	or	1.15	rounded
This Portfolio systematic risk is more than an average assets, since its beta is more than 1