(Portfolio beta and CAPM) You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings: a. What is the beta on each portfolio? b. Which portfolio is riskier? c. If the risk-free rate of interest were 4.5 percent and the market risk premium were 7 percent, what rate of return would you expect to earn from each of the portfolios? a. The beta on the first portfolio is Data table Asset A B C D (Round to three decimal places.) Beta 2.30 0.90 0.55 -1.30 Portfolio Weightings First Portfolio 12% 12% 38% 38% Second Portfolio 38% 38% 12% 12% X
(Portfolio beta and CAPM) You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings: a. What is the beta on each portfolio? b. Which portfolio is riskier? c. If the risk-free rate of interest were 4.5 percent and the market risk premium were 7 percent, what rate of return would you expect to earn from each of the portfolios? a. The beta on the first portfolio is Data table Asset A B C D (Round to three decimal places.) Beta 2.30 0.90 0.55 -1.30 Portfolio Weightings First Portfolio 12% 12% 38% 38% Second Portfolio 38% 38% 12% 12% X
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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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
Transcribed Image Text:(Portfolio beta and CAPM) You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings:
a. What is the beta on each portfolio?
b. Which portfolio is riskier?
c. If the risk-free rate of interest were 4.5 percent and the market risk premium were 7 percent, what rate of return would you expect to earn from each of the portfolios?
a. The beta on the first portfolio is
Data table
Asset
A
AB
C
D
(Click on the icon
(Round to three decimal places.)
Portfolio Weightings
Print
Beta
2.30
0.90
0.55
- 1.30
in order to copy its contents into a spreadsheet.)
First Portfolio
12%
12%
38%
38%
Done
Second Portfolio
38%
38%
12%
12%
I
X
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