6-13B. (Porrftlio beta and security market line) You own a portfolio consisting of the following stocks:

The risk-free rate is 8 percent. Also, the expected return on the market portfolio is 11.6 percent.

a. Calculate the expected return of your portfolio. (Hint: The expected return 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 preceding information, plot the security market line on paper. Plot the stocks from your portfolio on your graph.

d. From your plot in part (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 10% 1,00 12% 2 25 0.75 11 3 15 1.30 15 4 30 0.60 9 5 20 1.20 14