a)
To discuss:
Riskiness based on beta.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
b)
To discuss:
Change in market returns on expected returns.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
c)
To discuss:
Change in market returns on expected returns.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
d)
To discuss:
Asset preference.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
e)
To discuss:
Asset preference.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
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Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
- Give me three steps solution and explanationarrow_forwardWhat is the beta of a portfolio made up of two risky assets and a risk-free asset? You invest 35% in asset A with a beta of 1.2 and 35% in asset B with a beta of 1.1. Select one: O a. 0.66 O b.1.29 O C. 0.81 O d.1.14 O e. 1.03arrow_forwardQn4: Assume a two-stock portfolio created with $50,000 is invested in both HT and Collections. The expected returns are given below: Calculate the portfolio's return for each state of economy and fill them in the last column, under "Portfolio" (Hint: The portfolio's expected return is a weighted average of the returns of the portfolio's component assets). Calculate the portfolio's expected return (Hint: You have to incorporate the probability distribution of each state of economy). Calculate the portfolio's standard deviation. Economy Recession Below average Average Above average Boom Prob. HT 0.1 -27.0% 0.2 -7.0% 0.4 15.0% 0.2 30.0% 0.1 45.0% Coll 27.0% 13.0% 0.0% -11.0% -21.0% Portfolioarrow_forward
- 2arrow_forwardA4 a. Suppose we have two risky assets, Stock I and Stock J, and a risk-free asset. Stock I has an expected return of 25% and a beta of 1.5. Stock J has an expected return of 20% and a beta of 0.8. The risk-free asset’s return is 5%. a. Calculate the expected returns and betas on portfolios with x% invested in Stock I and the rest invested in the risk-free asset, where x% = 0%, 50%, 100%, and 150%.arrow_forwardProblem 1: 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 Problem 2: You are given the following probability distribution for a stock: Pr. Outcome.6 .4 -4% .6 12% A. Compute the expected return B. Compute the standard deviation C. Presuming the stock returns are normally distributed, what do these results indicate? Problem 3: A stock has a beta of 0.8. The market return is 14% and the risk free return is 3%. Compute the required return for this stock.arrow_forward
- Subject: acountingarrow_forwardBeta coefficients and the capital asset pricing model Suppose you are wondering how much risk you must undertake to generate an acceptable return on your investment portfolio. The risk-free return currently is 3%. The return on the overall stock market is 12%. Use the CAPM to calculate how high the beta coefficient of your investment portfolio would have to be to achieve each of the following expected portfolio returns. a.13% b. 25% c. 16% d. 18% e. Assume you are averse to risk. What is the highest return you can expect if you are unwilling to take more than an average risk?arrow_forwardYou decide to form a portfolio of the following amounts invested in the following stocks. What is the beta of the portfolio? SET YOUR CALCULATOR TO 4 DECIMAL PLACES THEN INPUT THE ANSWER ROUNDING TO 2 DECIMALS i.e. if your answer is 1.2455, enter it as 1.25. Amount Beta Expected Return $9,370 0.69 10.50% Microsoft $5,598 1.6 16.90% $4,261 1.1 15.75% $4,668 2.39 11.80% Stock Apple Ford Time Warnerarrow_forward
- Assume the betas for securities A, B, and C are as shown here. (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Security Beta A 1.58 B 0.65 C −0.23 If you have a portfolio with $30,000 invested in each of Investment A, B, and C, what is your portfolio beta?arrow_forwardSubject:- financearrow_forwardQUESTION 3 (Quantitative Question) Assume that you manage a $10.75 million mutual fund that has a beta of 1.05 and a 9.50% required (expected) return. The risk-free rate is 496. You now receive another $5.7 million, which you invest in stocks with an average beta of 0.65. What is the expected return on the new portfolio? Write the answer both in the space provided and on the empty pages on which you will also show your work.arrow_forward
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