Answered: Ariel holds a $10,000 portfolio that…

Principles Of Marketing

17th Edition

ISBN:9780134492513

Author:Kotler, Philip, Armstrong, Gary (gary M.)

Publisher:Kotler, Philip, Armstrong, Gary (gary M.)

Chapter1: Marketing: Creating Customer Value And Engagement

Section: Chapter Questions

Problem 1.1DQ

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Question

Ariel holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock’s beta, is listed in the following table:

Stock	Investment	Beta	Standard Deviation
Andalusian Limited (AL)	$3,500	0.80	15.00%
Kulatsu Motors Co. (KMC)	$2,000	1.50	12.00%
Western Gas & Electric Co. (WGC)	$1,500	1.20	16.00%
Makissi Corp. (MC)	$3,000	0.50	22.50%

Suppose all stocks in Ariel’s portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?

Makissi Corp.

Andalusian Limited

Western Gas & Electric Co.

Kulatsu Motors Co.

Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of standalone risk?

Western Gas & Electric Co.

Makissi Corp.

Andalusian Limited

Kulatsu Motors Co.

If the risk-free rate is 4% and the market risk premium is 6%, what is Ariel’s portfolio’s beta and required return? Fill in the following table:

	Beta	Required Return
Ariel’s portfolio

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