Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1) An individual has $55,000 invested in a stock with a beta of 0.7 and another $40,000 invested in a stock with a beta of

1) An individual has $55,000 invested in a stock with a beta of 0.7 and another $40,000 invested in a stock with a beta of 1.6. If these are the only two investments in her portfolio, what is your portfolios beta?

2) Suppose you manage the $4 million fund that consists of four stocks with the following investments:

Stock Investment Beta
A $400,000 1.2
B 600,000 -0.2
C 1,000,000 1.4
D 2,000,000 0.9
Total $4,000,000

a) Calculate the Porforlio Beta. Assuming the following market conditions:

Risk Free Rate of Return: 2%

Anticipated Market Return this Year: 15%

b) Under the CAPM model, what is the Required Rate of return for each asset in the portfolio and the portfollio overall

c) Confirm that the weighted average required return for the individual assets is equal to the required portfolio return calculated using the portfolio beta

3) You have the $2 million portfolio consisting of $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.2. You are considering selling $100,000 worth of one stock with a beta of 1.6 and using the proceeds to purchase another stock with a beta of 0.9. What will be the portfolios new beta after these transactions?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Computational Techniques In Economics And Finance

Authors: Constantin Zopounidis

1st Edition

1613245580, 978-1613245583

More Books

Students also viewed these Finance questions

Question

3. What should a contract of employment contain?

Answered: 1 week ago

Question

1. What does the term employment relationship mean?

Answered: 1 week ago