(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 3 percent and the market risk premium were 7.5 percent, what rate of return would you expect to earn from each of the portfolios? a. The beta on the first portfolio is (Round to three decimal places.) - The beta on the second portfolio is (Round to three decimal places.) b. Which portfolio is riskier? (Select the best choice below.) OA. The second portfolio because the beta is smaller. B. The second portfolio because the beta is larger. OC. The first portfolio because the beta is smaller. OD. The first portfolio because the beta is larger. c. If the risk-free rate of interest were 3% and the market risk premium were 7.5%, then the rate of return on the first portfolio is expected to be %. (Round to two decimal places.) If the risk-free rate of interest were 3% and the market risk premium were 7.5%, then the rate of return on the second portfolio is expected to be %. (Round to two decimal places.) Data table Portfolio Weightings Asset Beta First Portfolio Second Portfolio ABCD 2.10 8% 42% 0.80 8% 42% 0.40 42% 8% -1.80 42% 8% in or - X

EBK CONTEMPORARY FINANCIAL MANAGEMENT
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Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 6P
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quiz 8-15

(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 3 percent and the market risk premium were 7.5 percent, what rate of return would you expect to earn from each of the portfolios?
a. The beta on the first portfolio is
(Round to three decimal places.)
-
The beta on the second portfolio is (Round to three decimal places.)
b. Which portfolio is riskier? (Select the best choice below.)
OA. The second portfolio because the beta is smaller.
B. The second portfolio because the beta is larger.
OC. The first portfolio because the beta is smaller.
OD. The first portfolio because the beta is larger.
c. If the risk-free rate of interest were 3% and the market risk premium were 7.5%, then the rate of return on the first portfolio is expected to be %. (Round to two decimal places.)
If the risk-free rate of interest were 3% and the market risk premium were 7.5%, then the rate of return on the second portfolio is expected to be %. (Round to two decimal places.)
Data table
Portfolio Weightings
Asset
Beta
First Portfolio
Second Portfolio
ABCD
2.10
8%
42%
0.80
8%
42%
0.40
42%
8%
-1.80
42%
8%
in or
- X
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 3 percent and the market risk premium were 7.5 percent, what rate of return would you expect to earn from each of the portfolios? a. The beta on the first portfolio is (Round to three decimal places.) - The beta on the second portfolio is (Round to three decimal places.) b. Which portfolio is riskier? (Select the best choice below.) OA. The second portfolio because the beta is smaller. B. The second portfolio because the beta is larger. OC. The first portfolio because the beta is smaller. OD. The first portfolio because the beta is larger. c. If the risk-free rate of interest were 3% and the market risk premium were 7.5%, then the rate of return on the first portfolio is expected to be %. (Round to two decimal places.) If the risk-free rate of interest were 3% and the market risk premium were 7.5%, then the rate of return on the second portfolio is expected to be %. (Round to two decimal places.) Data table Portfolio Weightings Asset Beta First Portfolio Second Portfolio ABCD 2.10 8% 42% 0.80 8% 42% 0.40 42% 8% -1.80 42% 8% in or - X
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