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Question 3: Portfolio Beta and Expected Return (10 marks) In reference to the portfolio information presented below, answer the following questions. Portfolio Weighting in Stock
Question 3: Portfolio Beta and Expected Return (10 marks) In reference to the portfolio information presented below, answer the following questions. Portfolio Weighting in Stock K Weighting in Stock L Weighting in Stock M Weighting in Stock N 25% 25% 25% 25% Portfolio 1 Portfolio 2 30% 40% 20% 10% Portfolio 3 10% 20% 40% 30% a. The betas of the above four stocks, K, L, M, and N are 0.65, 0.9, 1.25, and 1.55, respectively. Calculate the beta for each of the portfolio in the above table given the weights in each asset as presented in the table. Show all work and formula(s) clearly. Specify the type of risk (i.e. systematic or unsystematic) beta is generally used to measure. (4 marks) Click here to enter text. b. Calculate the expected returns of the four individual assets and the three portfolios, if the current Security Market Line (SML) is plotting with an intercept of 1.25% (risk-free rate) and a market premium of 11.25% (slope of the line). Show all work and formula(s) clearly. (4 marks) Click here to enter text
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