Here is how to compute the beta and expected return of a portfolio...

	% of portfolio	Beta	Contribution to portfolio Beta	Expected Return (CAPM)	Contribution to Portfolio Return
Ford	50%	1.03	.50 x 1.03 = 0.515	9.7%	.50 x .097 = .0485 = 4.85%
riskier stock	50%	2.2	.50 x 2.2 = 1.1	15.3%	.50 x .153 = .0765 = 7.65%
Portfolio Beta	.0.515 + 1.1 = 1.6	Portfolio Return	4.85% + 7.65% = 12.5%

As you can see, the addition of Ford to a portfolio containing a riskier stock decreases the overall risk of the investments and still provides a respectable return of 12.5%.

Requirements

Complete the following tasks for this assignment:

• Visit the following website and take theInvestment Risk Tolerance Quiz. https://cafnr.missouri.edu/divisions/division-of-applied-social-sciences/research/investment-risk-tolerance-assessment/

Make a note of your results. You will use this information for this activity.

• Revisit your post from last week on the CAPM. Review the Beta and the Expected return for the stock you chose. Evaluate how risky this stock seems in relation to your risk tolerance profile. In other words, if you are a conservative investor, but the stock you selected last week had a very high Beta, then you will want to reduce the risk of owning this stock by pairing it with a low Beta stock.
• Once you have decided whether or not you need to increase or decrease risk, go back to YahooFinance and research some possible stocks to add to your portfolio. Identify 1 or 2 stocks that you think would bring the overall risk of your portfolio within a comfortable range. Use this FINC 331 Wk 6 Discussion Table.xlsx to help you compute the portfolio weighted averages.
  • Place the stock you used last week in the row marked "stock #1".
  • Enter the information for stocks #2, and #3 if using a third.
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    • Remember to adjust the portfolio weightings to reflect the number of stocks you have chosen. If you have two stocks, then the weighting is 50% each. If you have three, then it is 33.34% each.
    • Compute the Portfolio Beta and Portfolio Expected return. Use the example above to help you.
  • Tell us what you have learned about your risk tolerance profile and the stocks you selected. Be sure to copy and paste your Table into your post so that we can see your calculations.

WACC Calculator:

http://www.miniwebtool.com/wacc-calculator/

Or

http://www.calkoo.com/?lang=3&page=13

Answer rating: 100% (QA)

Portfolio Analysis and Risk Tolerance Unfortunately as an AI I cannot take the Investment Risk Tolerance Quiz or access external websites like Yahoo F... View the full answer