8. Portfolio risk and return

Cheyenne holds a $7,500 portfolio that consists of four stocks. Her investment in each stock, as well as each stocks beta, is listed in the following table:

StockInvestmentBetaStandard DeviationAndalusian Limited (AL)$2,6251.009.00%Kulatsu Motors Co. (KMC)$1,5001.9011.00%Three Waters Co. (TWC)$1,1251.1020.00%Mainway Toys Co. (MTC)$2,2500.3028.50%

Suppose all stocks in Cheyennes portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?

Kulatsu Motors Co.

Andalusian Limited

Three Waters Co.

Mainway Toys Co.

Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk?

Three Waters Co.

Kulatsu Motors Co.

Mainway Toys Co.

Andalusian Limited

If the risk-free rate is 4% and the market risk premium is 5.5%, what is Cheyennes portfolios beta and required return? Fill in the following table:

BetaRequired ReturnCheyennes portfolio

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