a. Calculate the portfolio beta on the basis of the original cost figures. b. Calculate the percentage return of each asset in the portfolio for the year. c. Calculate the percentage return of the portfolio on the basis of original cost, using income and gains during the year.
a. Calculate the portfolio beta on the basis of the original cost figures. b. Calculate the percentage return of each asset in the portfolio for the year. c. Calculate the percentage return of the portfolio on the basis of original cost, using income and gains during the year.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The table provides detailed information on four assets, including their initial cost, beta at the time of purchase, yearly income, and current value.
**Table Overview:**
1. **Asset A**
- **Cost:** $35,000
- **Beta at purchase:** 0.79
- **Yearly income:** $1,600
- **Value today:** $35,000
2. **Asset B**
- **Cost:** $36,000
- **Beta at purchase:** 0.96
- **Yearly income:** $1,500
- **Value today:** $37,000
3. **Asset C**
- **Cost:** $39,000
- **Beta at purchase:** 1.49
- **Yearly income:** $0
- **Value today:** $45,500
4. **Asset D**
- **Cost:** $10,000
- **Beta at purchase:** 1.32
- **Yearly income:** $250
- **Value today:** $10,500
**Explanation:**
- **Cost** refers to the initial investment made to purchase the asset.
- **Beta at purchase** indicates the asset's market risk compared to the overall market. Values less than 1 suggest less volatility, while values greater than 1 indicate higher volatility.
- **Yearly income** represents the income generated from the asset annually.
- **Value today** indicates the current market or assessed value of the asset.
This table is useful for assessing the performance and risk associated with different assets over time.
![**Portfolio Return and Beta - Personal Finance Problem**
Jamie Peters invested $120,000 to set up the following portfolio one year ago:
1. **Calculate the portfolio beta on the basis of the original cost figures.**
2. **Calculate the percentage return of each asset in the portfolio for the year.**
3. **Calculate the percentage return of the portfolio on the basis of original cost, using income and gains during the year.**
4. **At the time Jamie made his investments, investors were estimating that the market return for the coming year would be 9%. The estimate of the risk-free rate of return averaged 4% for the coming year. Calculate an expected rate of return for each stock on the basis of its beta and the expectations of market and risk-free returns.**
5. **On the basis of the actual results, explain how each stock in the portfolio performed differently relative to those CAPM-generated expectations of performance. What factors could explain these differences?**
---
**a. The portfolio beta on the basis of the original cost figures is [Input Box for Numeric Value]. (Round to two decimal places.)**
[The image includes a small table icon which can be clicked to view portfolio details.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F553f4f5a-ebc3-465d-ae10-30fadeaa7064%2Ff7dcdfaf-c080-4481-aed9-4aae78f0cf16%2Fn22138l_processed.png&w=3840&q=75)
Transcribed Image Text:**Portfolio Return and Beta - Personal Finance Problem**
Jamie Peters invested $120,000 to set up the following portfolio one year ago:
1. **Calculate the portfolio beta on the basis of the original cost figures.**
2. **Calculate the percentage return of each asset in the portfolio for the year.**
3. **Calculate the percentage return of the portfolio on the basis of original cost, using income and gains during the year.**
4. **At the time Jamie made his investments, investors were estimating that the market return for the coming year would be 9%. The estimate of the risk-free rate of return averaged 4% for the coming year. Calculate an expected rate of return for each stock on the basis of its beta and the expectations of market and risk-free returns.**
5. **On the basis of the actual results, explain how each stock in the portfolio performed differently relative to those CAPM-generated expectations of performance. What factors could explain these differences?**
---
**a. The portfolio beta on the basis of the original cost figures is [Input Box for Numeric Value]. (Round to two decimal places.)**
[The image includes a small table icon which can be clicked to view portfolio details.]
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