EVALUATION OF PORTFOLIO BETA AND THE REQUIRED RETURN ON STOCK

The tendency of a stock's price to move up and down with the market is reflected in its beta coefficient. Therefore, beta is a measure of an investment's market risk, and is a key element of the CAPM. In this part of the project, you get financial information using Yahoo!Finance (found athttp://finance.yahoo.com/)

To find a company's beta, enter the desired stock symbol and request a basic quote. Once you have the basic quote, select the"Key Statistics". Scroll down this page to find the stock's beta.

******In your initial response to the topic you have to answer all 5questions. Please show all work.********

From Yahoo!Finance obtain a reporton any two companies.

1. Whatarethebetaslistedforthesecompanies?
2. Ifyoumadeanequaldollarinvestmentineachstockswhatwouldbethebetaofyourportfolio?
3. Ifyoumade70%ofdollarinvestmentinstockA,and30%ofdollarinvestmentinstockB,whatwouldbethebetaofyourportfolio?Pleaseshowyourwork.
4. ApplytheCapitalAssetPricingModel(CAPM)SecurityMarketLinetoestimatetherequiredreturnonthesetwostocks.AssumptionsandData:Notethatyouwillneedtherisk-freerateandthemarketriskpremium.Assumea5%marketriskpremium.Togetthecurrentyieldon10-yearTreasurysecuritiesgotoFinance!Yahoos(www.finance.yahoo.com)-clickonMarketData-Bonds.Youwillusethecurrentyieldon10-yearTreasurysecuritiesastherisk-freeratetoestimatetherequiredrateofreturnonstocks.
5. ComparetherequiredreturnonthesestockscalculatedusingCAPMinquestion#3againsttheirhistoricalreturnoverthelast52weeks,foundintheYahoo!Finance-KeyStatistics.Isthereadifferencebetweenthesereturns?Isthisaproblem?Whyisthereadifference?