Question 2 1. An investor holds a fund that consists of six stocks. His investment in cach stock as well as each stock's beta is listed in the tables below: (6 marks) COMMON STOCK (TICKER SYMBOL) Nanyang Business Systems (NBS) Yunnan Garden Supply, Inc. (YUWHO) Bird Nest Soups Company (SLURP) Wacho.com (WACHO) Park City Cola Company (BURP) Oldies Records, Land. (SHABOOM) BETA 1.40 0.80 0.60 1.80 1.05 0.90 Investment Common stock (Ticker Symbol) NBS S800 YUWHO SLURP WACHO BURP SHABOOM S3000 S2500 S2500 S1500 $1000 The risk-free rate is 5.5% and the market required return is 13%. a) What is the required rate of return of each stock? b) What is portfolio's beta? c) What is portfolio's required rate of retur? d) Suppose you sell YUWHO stock and use the entire amount (.e. $3000) in buying additional stock of NBS. What will be the portfolio's beta now? II. The following are possible states of the economy and the returns associated with stocks of Microsoft and Amazon in those states (6 marks) Conditions Probability Return (Microsoft) Return (Amazon) Strong 30% 13% 24% Normal 18 36 Weak 30 -6 48 Calculate the expected return and the standard deviation of a portfolio comprised of stocks of Microsoft and Amazon. The weight in stock of Microsoft is 60%. 40