Question
(Portfolio beta and CAPM)You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings: Portfolio Weightings Asset
(Portfolio beta and CAPM)You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings:
| Portfolio Weightings | ||||
| Asset | Beta | First Portfolio | Second Portfolio | |
|---|---|---|---|---|
| A | 2.40 | 15% | 35% | |
| B | 0.95 | 15% | 35% | |
| C | 0.40 | 35% | 15% | |
| D | 1.40 | 35% | 15% | |
a.What is the beta on each portfolio?
b.Which portfolio is riskier?
c.If the risk-free rate of interest were
3
percent and the market risk premium were
5.5
percent,
what rate of return would you expect to earn from each of the portfolios?
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Multinational Business Finance
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
16th Edition
013749601X, 978-0137496013
