a. Determine the expected return of security X. b. Calculate the return of Anna’s portfolio. c. Calculate the beta of Anna’s portfolio. d. To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio’s systematic risk? How would portfolio expected return change (higher or lower) if you add this security?
Anna holds a portfolio comprising the following 3 stocks: X, Y and Z.
Investment Amount Beta. Expected return
Security X $2000. 1.3.
Security Y $1000. 1. 10%
Security Z. $500. 0. 2%
a. Determine the expected return of security X.
b. Calculate the return of Anna’s portfolio.
c. Calculate the beta of Anna’s portfolio.
d. To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio’s systematic risk? How would portfolio expected return change (higher or lower) if you add this security?
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