Question

STOCK PERCENTAGE OF PORTFOLIO
BETA EXPECTED RETURN

1 20% 0.95 16%

2 10% 0.90 13%

3 25% 1.15 20%

4 5% 0.70 12%

5 40% 1.55 25%

(Portfolio beta and security market line) You own a portfolio consisting of the following stocks:. The risk-free rate is 4 percent.Also, the expected return on the market portfolio is 10 percent.

a. Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stocks' expected returns, where the weights are the percentage invested in each stock.)

b. Calculate the portfolio beta.

c. Given the foregoing information, plot the security market line. Plot the stocks from your portfolio on your graph.

d. From your plot in part (c), which stocks appear to be your winners and which ones appear to be losers?

e. Why should you consider your conclusion in part (d) to be less than certain?

Answer #1

c. and d.

d. All the stocks appear to be winners since they lie above the
SML.

SML equation: E(R) = rf+beta(Rm-rf) = 4+beta(10-4)=4+beta*6

e. We should consider our conclusion in part (d ) to be less than certain because beta is calculated from the historic data which may or may not be applicable for the future calculation.

Please do rate me and mention doubts, if any, in the comments section.

Suppose that a portfolio consists of the following stocks:
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Amount
Beta
Chevron
$25,000
0.95
General Electric
60,000
1.20
Whirlpool
15,000
0.95
The risk-free rate (
) is 6 percent and the market risk premium ( ) is 4.2
percent.
Determine the beta for the portfolio. Round your answer to two
decimal places.
Determine how much General Electric stock one must sell and
reinvest in Chevron stock in order to reduce the beta of the
portfolio to 1.00. Do not...

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(6marks) (Use the simplest way to calculate)

1. The
risk-free rate of interest is 2%. Stock AAA has a beta
of 1.4 and a standard deviation of return = .40. The
expected return on the market portfolio is 9%. Assume CAPM
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Standard Deviation
Beta
Stock A
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15%
1.6
Stock B
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25%
1.1
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Weight
Expected Beta
A
10%
0.8
B
20%
1.1
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1.3
D
40%
0.7
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. You hold a portfolio with the following securities
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Weight
Beta Expected Return
XXX Corporation 20%
2.20
25.0%
YYY Corporation
30%
1.90 22.0%
ZZZ Corporation 25%.
0.40
16.0%
FFF Corporation 25%
0.70
17.0%
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A)19.85%and1.244
B)19.85%and1.285
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The following are estimates for two stocks.
Stock
Expected Return
Beta
Firm-Specific Standard Deviation
A
11
%
0.90
32
%
B
16
1.40
40
The market index has a standard deviation of 19% and the
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a. What are the standard deviations of stocks
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b. Suppose that we were to construct a
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Stock A
0.40
Stock B
0.40
T-bills
0.20
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Beta
A
2.30
B
1.05
C
0.45
D
−1.70
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