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Required: Lisa’s portfolio has provided the rates of return of 16.6%, 17.2%, - 9.6%, 15.5% and 18.4% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period?                                                                                    2.  Assume that expected return of the stock A in Lisa’s portfolio is 19.5%. The risk premium on the stocks of the same industry are 7.8%. The current Treasury Bond has the return rate of 7%.  Calculate the beta of the stock using Capital Asset Pricing Model (CAPM).

Required: Lisa’s portfolio has provided the rates of return of 16.6%, 17.2%, - 9.6%, 15.5% and 18.4% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period?                                                                                    2.  Assume that expected return of the stock A in Lisa’s portfolio is 19.5%. The risk premium on the stocks of the same industry are 7.8%. The current Treasury Bond has the return rate of 7%.  Calculate the beta of the stock using Capital Asset Pricing Model (CAPM).

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Lisa is a graduate student from  who is actively involved in investment in the securities market. She had established one investment portfolio 5 years ago.

 

Required:

  1. Lisa’s portfolio has provided the rates of return of 16.6%, 17.2%, - 9.6%, 15.5% and 18.4% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period?                                                                                   

2.  Assume that expected return of the stock A in Lisa’s portfolio is 19.5%. The risk premium on the stocks of the same industry are 7.8%. The current Treasury Bond has the return rate of 7%.  Calculate the beta of the stock using Capital Asset Pricing Model (CAPM).   

Expert Solution
Step 1

1. Geometric Average Return = [{(1+ r1) x (1 + r2) x ............... x (1 + rn)}^(1 / n)] - 1

2. Expected Return = Risk Free Return + Beta x Risk Premium

Beta = (Expected Return - Risk Free Return) / Risk Premium

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