Calculate each of the stock’s expected return and risk (beta) as compared to the market What should be the expected return of the portfolio based on values calculated in part a. Calculate the beta of the portfolio? What does it tells regarding the riskiness of the portfolio? Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why or why not
Calculate each of the stock’s expected return and risk (beta) as compared to the market What should be the expected return of the portfolio based on values calculated in part a. Calculate the beta of the portfolio? What does it tells regarding the riskiness of the portfolio? Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why or why not
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...
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Question
Assume you are a
Company name |
Volatility (Standard deviation) |
Weight in Portfolio |
Correlation with the market portfolio |
Engro Ltd |
25% |
0.30 |
0.40 |
Lucky Cement Ltd |
12% |
0.30 |
0.60 |
FFC Ltd |
13% |
0.40 |
0.50 |
The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate based on central bank’s discount rate is 3%.
- Calculate each of the stock’s expected return and risk (beta) as compared to the market
- What should be the expected return of the portfolio based on values calculated in part a.
- Calculate the beta of the portfolio? What does it tells regarding the riskiness of the portfolio?
- Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why or why not?
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