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Portfolio Returns. Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free interest rate is 4% and
- Portfolio Returns. Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10% according to CAPM.
- What is the expected return of MegaChip stock? (4 points)
- What is the expected return of Littlewing stock? (4 points)
- What is the beta of a portfolio of 60% MegaChip and 40% Littlewing stock? (4 points)
- What is the expected return of a portfolio of 60% MegaChip and 40% Littlewing stock? (4 points)
- Plot the Security Market Line and point out the market portfolio, each companys stock, and the proposed portfolio above. (4 points)
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