6-13A (Portfolio beta and security market line) You own a portfolio consisting ofthe following stocks:

The risk-free rate is 7 percent. Also, the expected rerum on the market portfolio is 15.5 percent.

a. Calculate the expected rerum of your portfolio. (Hint: The expected rerum of a portfolio equals the weighted average of the individual stock's expected return, where the weights are the percentage invested in each stock.)

b. Calculate the portfolio beta.

c. Given the information preceding, plot the security market line on paper. Plot the stocks from your portfolio on your graph.

d. From your plot in pan (c), which stocks appear to be your winners and which ones appear to be losers?

e. Why should you consider your conclusion in part

(d) to be less than certain?

Transcribed Image Text:

PERCENTAGE STOCK OF PORTFOLIO BETA EXPECTED RETURN 1 20% 1.00 16% 2345 30% 0.85 14% 15% 1.20 20% 25% 0.60 12% 5 10% 1.60 24%