You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .75, -1.2, .90, 1.3, 1.5. The risk free return is 4% and the market return is 9%. A. Compute the beta of the portfolio B. Compute the required return of the portfolio

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A: Please see the white board for the expression for standard deviation of a portfolio. The symbols…

Q: Please do this in Excel using relevant formulas. Stock A has a beta of 0.5, and investors expect it…

A: CAPM stands for capital asset pricing model. CAPM shows the relationship between expected return and…

Q: Assume that the risk-free rate is 5% and that the market risk premium is 6%. What is the required…

A: Required return = Risk free rate + Beta * Market risk premium

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A: Beta: Beta can be defined as the measure of instability of a separate stock relative to the…

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A: The expected return on a portfolio indicates the overall expected return from the portfolio. The…

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A: The CAPM refers to the relationship between the systematic risk faced by the investment and the…

Q: You have a portfolio that is equally invested in Stock F with a beta of .95, Stock G with a beta of…

A: Calculation of beta of the portfolio:- The market beta is always equal to one. Portfolio beta = Beta…

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A: A portfolio is an assortment of securities—cash, stocks, bonds, and other investments—that an…

Q: Suppose that the risk-free rate is 5% and that the market risk premium is 7%.What is the required…

A: Risk free rate = 5% Market risk premium = 7% Beta 1 = 1 Beta 2= 1.7

Q: different scenarios are as follows: Scenario 1 2 3 4 5 A 0.11 -0.11 0.09 0.25 0.18 B -0.09 0.12 0.15…

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Q: Suppose that you observe the following information in Table 2 for stocks A and B: Table 2 Expected…

A: The market risk premium is the excess of the expected return on the benchmark index over the…

Q: You have a portfolio that is invested 19 percent in Stock A, 32 percent in Stock B, and 49 percent…

A: Weight of stock A (WA) = 19% or 0.19Weight of stock B (WB) = 32% or 0.32Weight of stock C (WC) = 49%…

Q: Assume you have invested in two other stocks: Stock A has a beta of 1.20 and Stock B has a beta of…

A: Required return calculation is wrong. Correct solution is provided below.…

Q: The return of a portfolio is 11 per cent, its volatility is 15.2214 per cent, and its beta is 0.7.…

A: The Information ratio can be calculated by dividing the excess return of the portfolio by its…

Q: Stock A has an expected return of 5% and a beta of .7. Stock B has an expected return of 9% and a…

A: Portfolio beta = (Weight of A * Beta of A) + ( Weight of B * Beta of B) Let's assume Weight of B = Y…

Q: Problem 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of…

A: According to bartleby guidelines , if multiple questons are asked , then st question needs to be…

Q: What would be the beta of this portfolio?

A: Beta shows the relation between systematic risk of the investment and the expected return of the…

Q: 5. Stock A has a beta of 0.50 and Stock B has a beta of 1.25. Suppose if is 4% and Rm 1S 10%. a.…

A: Solution:- As per security market line, ie. Formula of Capital Asset Pricing Model (CAPM),  E(R) =…

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A: Beta on one stock is 1.16. The portfolio consists one risk free asset and that must have a beta of…

Q: You have a portfolio that is equally invested in Stock F with a beta of 1.17, Stock G with a beta of…

A: Expected return means the percentage of profit that investor is expected depending upon the risk…

Q: Find risk free rate and expected return of market portfolio based on the following information -…

A: Expected return (CAPM) = Rf+β*Rp.Rf = Risk free rate.Rp = Risk premium.

Q: 5. Portfolio Beta Portfolio beta can be computed in the same way as portfolio return was computed.…

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A: Portfolio A return (Ra) = 7.4% Portfolio B return (Rb) = 10.6% Beta of first factor for A (A1) = 0.5…

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A:

Q: Fiona constructs an investment portfolio using two common stocks, A and B. a. Suppose the weight…

A: Part A: Weight of A = 0.50 Weight of B = (1 - weight A)                     = (1 - 0.50)…

Q: The expected rates of return for Stocks A, B, and C are.10,.15, and .20 respectively. The risk free…

A: Expected returns of each stock:A: 0.10B: 0.15C: 0.20Risk free rate: 0.03Risk premium: 0.08Investment…

Q: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5…

A: This consists of two parts: In the first part we need to calculate the beta of the portfolio. In the…

Q: You have a portfolio that is invested 24 percent in Stock A, 38 percent in Stock B, and 38 percent…

A: Information Stock Weight Beta A 24% 0.69 B 38% 1.24 C 38% 1.53

Q: The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27.  What is…

A: The risk-free rate is 5.6%, beta is 2.27 and market risk premium is 8.5%. Capital Asset Pricing…

Q: b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2…

A: Single index model: Ri=αi+βiRm+ei Ri=excess return over risk free rate

Q: 2. Suppose that the market model for stocks A and B is estimated with the following results: RA = 1%…

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A: Return on portfolio is weighted average return of portfolio.

Q: beta and security market line) You own a portiono consisting of the following stocks. The risk-free…

A: A ). Expected return =weighted average return                          = (0.3*19%) + (0.35*13%) +…

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A: Beta of stock P = Bp = 0.59 Beta of stock Q = Bq = 0.89 Beta of stock R = Br = 1.05 Beta of stock S…

Q: You have a portfolio that is invested 23 percent in Stock A, 36 percent in Stock B, 41 percent in…

A: Beta of the portfolio is the sum of the product of the weight of the stocks and beta of the stocks.

Q: We know that two stocks A and B are correctly priced by the CAPM model. For A, the expected return…

A: Given information : Expected return for stock A = 12% Beta for stock A = 1.5 Expected return for…

Q: Consider three scenarios with the probabilities given below. Let the returns on two different stocks…

A:

Q: ou have a portfolio that is equally invested in Stock F with a beta of 1.09, Stock G with a beta of…

A: Portfolio beta will be the sum of multiply of weight and beta of each stock. Portfolio Beta =Weight…

Q: You have observed the following returns over time: Assume that the risk-free rate is 6% and the…

A: The required return is the amount of investment appreciation demanded by an investor for taking the…

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Q: We have the following information on Stocks A and B. The risk-free rate is S the market risk premium…

A: Stock is overpriced when the expected return is less than required rate and when stock is…

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.