Chapter 12, Problem 4QAP

Summary Introduction

Adequate information:

Beta 1 of Stock A $\left({\text{β}}_{\text{1}}{\text{S}}_{\text{A}}\right)$ = 1.55

Beta 2 of Stock A $\left({\text{β}}_{\text{2}}{\text{S}}_{\text{A}}\right)$ = 0.80

Beta 3 of Stock A $\left({\text{β}}_{\text{3}}{\text{S}}_{\text{A}}\right)$ = 0.05

Beta 1 of Stock B $\left({\text{β}}_{\text{1}}{\text{S}}_{\text{B}}\right)$ = 0.81

Beta 2 of Stock B $\left({\text{β}}_{\text{2}}{\text{S}}_{\text{B}}\right)$ = 1.25

Beta 3 of Stock B $\left({\text{β}}_{\text{3}}{\text{S}}_{\text{B}}\right)$ = -0.20

Beta 1 of Stock C $\left({\text{β}}_{\text{1}}{\text{S}}_{\text{C}}\right)$ = 0.73

Beta 2 of Stock C $\left({\text{β}}_{\text{2}}{\text{S}}_{\text{C}}\right)$ = -0.14

Beta 3 of Stock C $\left({\text{β}}_{\text{3}}{\text{S}}_{\text{C}}\right)$ = 1.24

Risk premium of Stock A $\left({\text{Rp}}_{\text{A}}\right)$= 0.049

Risk premium of Stock B $\left({\text{Rp}}_{\text{B}}\right)$= 0.038

Risk premium of Stock C $\left({\text{Rp}}_{\text{C}}\right)$= 0.053

Weight of Stock A $\left({\text{W}}_{\text{A}}\right)$= 0.20

Weight of Stock B $\left({\text{W}}_{\text{B}}\right)$= 0.20

Weight of Stock C $\left({\text{W}}_{\text{C}}\right)$= 0.60

Risk-free rate $\left({\text{R}}_{\text{f}}\right)$ = 0.032

To compute: Return on portfolio

Introduction: Portfolio return refers to the return that is anticipated on the portfolio as a whole including all the securities.