Question 5

Consider the following stock information about Tencent and HSBC

State of Economy	Probability of State of Economy	Returns if State Occurs
		Tencent	HSBC
Bad	0.30	-10%	-5%
Good	0.70	15%	12%

1. Whatre the expected return on each stock? (2 marks)
2. Whatre the standard deviation on each stock? (4 marks)
3. The risk free rate is 1.5%. Based on the CAPM, If Tencents market beta is 1.5, whats the beta of HSBC? (3 marks)
4. If you invested 65 percent in Tencent and 35 percent in HSBC, what is your portfolio expected return? The standard deviation? (5 marks).
5. Given the portfolio information in (d) and beta information in (c), what is the portfolios market beta? (3 marks)