Question
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
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:
Stock | Investment | Beta | Standard Deviation |
---|---|---|---|
Andalusian Limited (AL) | $1,750 | 0.90 | 12.00% |
Kulatsu Motors Co. (KMC) | $1,000 | 1.90 | 11.50% |
Water and Power Co. (WPC) | $750 | 1.15 | 18.00% |
Makissi Corp. (MC) | $1,500 | 0.40 | 28.50% |
1) Suppose all stocks in Emmas portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?
Kulatsu Motors Co.
Water and Power Co.
Makissi Corp.
Andalusian Limited
2) Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk?
Andalusian Limited
Water and Power Co.
Makissi Corp.
Kulatsu Motors Co.
3) If the risk-free rate is 4% and the market risk premium is 5.5%, what is Emmas portfolios beta and required return? Fill in the following table:
Beta | Required Return | |
---|---|---|
Emmas portfolio | ? | ? |
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