1. Sally is evaluating two portfolios which consist of four assets but with different proportions. She is interested in using beta to compare the risk of the portfolio. Given below is the information on each of the portfolios: Portfolio Weights (%) Portfolio Weights (%) Asset Asset Beta Portfolio X Portfolio Y 1 1.20 15 25 2 0.95 20 20 3 0.70 40 25 4 1.30 25 30 Total 100 100 (a) Calculate the betas for portfolios X and Y. (6) (b) Compare the risk of each portfolio to the market portfolio as well as to each other. Assume the market beta is 1.0. (4) (c) Determine which portfolio is riskier. Explain. (4) (d) Calculate the required return for each portfolio based on the capital asset pricing model (CAPM), assuming the risk-free rate is 2% and the market return is 9%. (6) (Total / Jumlah: 20)
1. Sally is evaluating two portfolios which consist of four assets but with different proportions. She is interested in using beta to compare the risk of the portfolio. Given below is the information on each of the portfolios: Portfolio Weights (%) Portfolio Weights (%) Asset Asset Beta Portfolio X Portfolio Y 1 1.20 15 25 2 0.95 20 20 3 0.70 40 25 4 1.30 25 30 Total 100 100 (a) Calculate the betas for portfolios X and Y. (6) (b) Compare the risk of each portfolio to the market portfolio as well as to each other. Assume the market beta is 1.0. (4) (c) Determine which portfolio is riskier. Explain. (4) (d) Calculate the required return for each portfolio based on the capital asset pricing model (CAPM), assuming the risk-free rate is 2% and the market return is 9%. (6) (Total / Jumlah: 20)
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
ChapterST3: The Stock Market: Its Function, Performance, And Potential As An Investment Opportunity
Section: Chapter Questions
Problem 1CQ
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Question
Transcribed Image Text:1. Sally is evaluating two portfolios which consist of four assets but with different proportions.
She is interested in using beta to compare the risk of the portfolio. Given below is the
information on each of the portfolios:
Portfolio Weights (%) Portfolio Weights (%)
Asset
Asset Beta
Portfolio X
Portfolio Y
1
1.20
15
25
2
0.95
20
20
3
0.70
40
25
4
1.30
25
30
Total
100
100
(a) Calculate the betas for portfolios X and Y.
(6)
(b) Compare the risk of each portfolio to the market portfolio as well as to each other. Assume
the market beta is 1.0.
(4)
(c) Determine which portfolio is riskier. Explain.
(4)
(d) Calculate the required return for each portfolio based on the capital asset pricing model
(CAPM), assuming the risk-free rate is 2% and the market return is 9%.
(6)
(Total / Jumlah: 20)
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