Question
Obi-wan forms an aggressive growth portfolio by investing 20% of his savings in GM stock, 21% in Nissan stock, 24% in Kia stock, 14% in
Obi-wan forms an aggressive growth portfolio by investing 20% of his savings in GM stock, 21% in Nissan stock, 24% in Kia stock, 14% in an index fund, and the last 21% is allocated on a bond fund. Assume for simplicity that the index fund is a good proxy to the market portfolio and has a beta equal to 1, whereas the bond fund is a good proxy to the riskless asset. The beta of GM stock is 1.13, the beta of Nissan is 1.41, and the beta of Kia is 1.72. If the expected return of the market index is 14% and the risk-free asset yields 3%, what are the beta and the expected return of Obi-wans portfolio? Give your answer rounded to two decimal places. What is the beta of the portfolio?
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