Problem 1:

You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .75, -1.2, .90, 1.3, 1.5. The risk free return is 4% and the market return is 9%.

A. Compute the beta of the portfolio

B. Compute the required return of the portfolio

Problem 2:

You are given the following probability distribution for a stock:

Pr.Outcome

.4-4%

.612%

A. Compute the expected return

B. Compute the standard deviation

C. Presuming the stock returns are normally distributed, what do these results indicate?

Problem 3:

A stock has a beta of 0.8. The market return is 14% and the risk free return is 3%. Compute the required return for this stock.

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