Question
Jamie Peters invested $100,000 to set up the following portfolio 1 year ago. Asset Cost Beta at purchase Yearly income Value today A $20,000 0.80
Jamie Peters invested $100,000 to set up the following portfolio 1 year ago.
Asset | Cost | Beta at purchase | Yearly income | Value today |
---|---|---|---|---|
A | $20,000 | 0.80 | $1,600 | $20,000 |
B | 35,000 | 0.95 | 1,400 | 36,000 |
C | 30,000 | 1.50 | --- | 34,500 |
D | 15,000 | 1.25 | 375 | 16,500 |
D. At the time Jamie made his investments, investors were estimating that the market return for the coming year would be 10%. The estimate of the risk-free rate of return averaged 4% for the coming year. Calculate an expected rate of return for each stock on the basis of its beta and the expectations of market and risk-free returns.
e. On the basis of the actual results, explain how each stock in the portfolio performed relative to those CAPM-generated expectations of performance. What factors could explain these differences?
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