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8-14 and 8-16 please show the formulas 8-14 PORTFOLIO BETA Suppose you held a diversified portfolio consisting of a $7,500 invest- ment in each of
8-14 and 8-16 please show the formulas
8-14 PORTFOLIO BETA Suppose you held a diversified portfolio consisting of a $7,500 invest- ment in each of 20 different common stocks. The portfolio's beta is 1.12. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.75. What would your portfolio's new beta be? 8-15 CAPM AND REQUIRED RETURN HR Industries (HRI) has a beta of 1.8; LR Industries's (LRI) beta is 0.6. The risk-free rate is 6%, and the required rate of return on an average stock is 13%. The expected rate of inflation built into tre falls by 1.5 percentage points; the real risk-free rate remains constant; the required return on the market falls to 10.5%; and all betas remain constant. After all of these changes, what will be the difference in the required returns for HRI and LRI? . 8-16 CAPM AND PORTFOLIO RETURN You have been managing a $5 million portfolio that has a beta of 1.25 and a required rate of return of 12%. The current risk-free rate is 5.25%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.75, what will be the required return on your $5.5 million portfolioStep by Step Solution
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