Question
8. Portfolio risk and return Elle holds a $7,500 portfolio that consists of four stocks. Her investment in each stock, as well as each stocks
8. Portfolio risk and return
Elle 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:
| Stock | Investment | Beta | Standard Deviation |
|---|---|---|---|
| Perpetualcold Refrigeration Co. (PRC) | $2,625 | 1.00 | 9.00% |
| Kulatsu Motors Co. (KMC) | $1,500 | 1.90 | 11.00% |
| Water and Power Co. (WPC) | $1,125 | 1.10 | 20.00% |
| Flitcom Corp. (FC) | $2,250 | 0.30 | 28.50% |
Suppose all stocks in Elles portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?
Flitcom Corp.
Perpetualcold Refrigeration Co.
Water and Power Co.
Kulatsu Motors Co.
Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk?
Water and Power Co.
Flitcom Corp.
Perpetualcold Refrigeration Co.
Kulatsu Motors Co.
If the risk-free rate is 7% and the market risk premium is 8.5%, what is Elles portfolios beta and required return? Fill in the following table:
| Beta | Required Return | |
|---|---|---|
| Elles portfolio |
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
15th edition
77861612, 1259194078, 978-0077861612, 978-1259194078
