8. Portfolio risk and return

Emma holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stocks beta, is listed in the following table:

StockInvestmentBetaStandard DeviationPerpetualcold Refrigeration Co. (PRC)$1,7500.8012.00%Zaxatti Enterprises (ZE)$1,0001.5012.00%Three Waters Co. (TWC)$7501.2016.00%Flitcom Corp. (FC)$1,5000.4022.50%

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

Zaxatti Enterprises

Perpetualcold Refrigeration Co.

Flitcom Corp.

Three Waters Co.

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

Zaxatti Enterprises

Flitcom Corp.

Three Waters Co.

Perpetualcold Refrigeration Co.

If the risk-free rate is 7% and the market risk premium is 8.5%, what is Emmas portfolios beta and required return? Fill in the following table:

BetaRequired ReturnEmmas portfolio

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