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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Question
Portfolio risk and return
Emma holds a $7,500 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) | $2,625 | 0.80 | 15.00% |
| Kulatsu Motors Co. (KMC) | $1,500 | 1.90 | 11.00% |
| Water and Power Co. (WPC) | $1,125 | 1.10 | 16.00% |
| Makissi Corp. (MC) | $2,250 | 0.50 | 28.50% |
If the risk-free rate is 7% and the market risk premium is 8.5%, what is Emma’s portfolio’s beta and required return? Fill in the following table:
If the risk-free rate is 7% and the market risk premium is 8.5%, what is Emma’s portfolio’s beta and required return? Fill in the following table:
BETA 0.9750 REQUIRED RETURN
0.8288 867.50%
0.6533 2,232.50%
1.4625 15.29%
1,895.96%
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