Consider a portfolo consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected returm of each stock b. Using your answer from part (a). calculate the expected return of the portfolo. c. What is the beta of the portfolio? d. Using your answer from part (c). calculate the expected return of the portfolo and verify that it matches your answer to part (b). a. Compute the beta and expected return of each stock. (Round to two decimal places.) E TITIT Data table Portfolio Weight (A) 0.28 Volatility (B) 13% Correlation (C) Beta (D) Expected Return (E) НЕС Сор 0.33 Green Widget 0.39 27% 0.61 (Click on the following icon e in order to copy its contents into a spreadsheet) Alive And Well 0.33 14% 0.43 Portfolio Weight 0.28 Correlation with the Market Portfolio Volatility 13% НЕС Сегр Green Widget 0.33 b. Using your answer from part (a). calculate the expected return of the portfolio. 0.39 27% 0.61 Alive And Well 0.33 14% 0.43 The expected return of the portfolio is%. (Round to two decimal places.) c. What is the beta of the portfolio? The beta of the portfolio is (Round to three decimal places.) Print Done d. Using your answer from part (c). calculate the expected return of the portfolio and verify that it matches your answer to part (b). The expected returm of the portfolio is%. (Round to two decimal places.)
Consider a portfolo consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected returm of each stock b. Using your answer from part (a). calculate the expected return of the portfolo. c. What is the beta of the portfolio? d. Using your answer from part (c). calculate the expected return of the portfolo and verify that it matches your answer to part (b). a. Compute the beta and expected return of each stock. (Round to two decimal places.) E TITIT Data table Portfolio Weight (A) 0.28 Volatility (B) 13% Correlation (C) Beta (D) Expected Return (E) НЕС Сор 0.33 Green Widget 0.39 27% 0.61 (Click on the following icon e in order to copy its contents into a spreadsheet) Alive And Well 0.33 14% 0.43 Portfolio Weight 0.28 Correlation with the Market Portfolio Volatility 13% НЕС Сегр Green Widget 0.33 b. Using your answer from part (a). calculate the expected return of the portfolio. 0.39 27% 0.61 Alive And Well 0.33 14% 0.43 The expected return of the portfolio is%. (Round to two decimal places.) c. What is the beta of the portfolio? The beta of the portfolio is (Round to three decimal places.) Print Done d. Using your answer from part (c). calculate the expected return of the portfolio and verify that it matches your answer to part (b). The expected returm of the portfolio is%. (Round to two decimal places.)
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
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
100%
Transcribed Image Text:Consider a portfolio consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%.
a. Compute the beta and expected return of each stock.
b. Using your answer from part (a), calculate the expected return of the portfolio.
c. What is the beta of the portfolio?
d. Using your answer from part (c), calculate the expected return of the portfolio and verify that it matches your answer to part (b).
a. Compute the beta and expected return of each stock. (Round to two decimal places.)
TITLT
Data table
Portfolio Weight
(A)
Volatility
(B)
Correlation
(C)
Expected Return
(E)
%
Beta
(D)
НЕС Согр
0.28
13%
0.33
Green Widget
(Click on the following icon a in order to copy its contents into a spreadsheet.)
0.39
27%
0.61
%
Portfolio Weight
Alive And Well
0.33
14%
0.43
Volatility
13%
Correlation with the Market Portfolio
НЕС Согр
Green Widget
0.28
0.33
b. Using your answer from part (a), calculate the expected return of the portfolio.
0.39
27%
0.61
Alive And Well
0.33
14%
0.43
The expected return of the portfolio is %. (Round to two decimal places.)
c. What is the beta of the portfolio?
The beta of the portfolio is. (Round to three decimal places.)
Print
Done
d. Using your answer from part (c), calculate the expected return of the portfolio and verify that it matches your answer to part (b).
The expected return of the portfolio is %. (Round to two decimal places.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education