You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment Beta $198,000 297,000 495,000 1.45 0.62 1.32 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 14 percent and that the risk-free rate is 8 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.)
You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment Beta $198,000 297,000 495,000 1.45 0.62 1.32 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 14 percent and that the risk-free rate is 8 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and
its beta are summarized below.
Stock
A
B
с
Investment
$198,000
297,000
495,000
Beta
Beta of the portfolio
Expected rate of return
1.45
0.62
1.32
Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected
rate of return for the portfolio. Assume that the expected rate of return on the market is 14 percent and that the
risk-free rate is 8 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return
answer to 2 decimal places, e.g. 52.75%.)
%
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