Question $6$

Francisco Alvarez, an individual investor, wishes to assess the risk of two portfolios he is considering. The first is a portfolio that Francisco called "the necessities," which includes investments in five stocks listed in Table $2$: Costco, Exxon, PepsiCo, Starbucks, and Walmart. Francisco' "high$-$tech" portfolio also contains five stocks: Amazon, Apple, Intel, Microsoft, and Qualcomm. In each portfolio, Francisco invests the same proportion $(20\%)$ in each of the five stocks.

Table $2$: Beta Coefficients for Selected Stocks $($April $2020)$

$\backslash$table$[[$Assets$,$Beta,Stock,Beta$],[$Amazon$,1\mathrm{.}35,$Int'I Business Machines,$1\mathrm{.}24],[$Apple$,1\mathrm{.}17,$JPMorgan Chase & Co$,1\mathrm{.}18],[$Bank of America,$1\mathrm{.}73,$Microsoft,$0\mathrm{.}95],[$Costco$,0\mathrm{.}70,$Netflix,$0\mathrm{.}97],[$Disney$,1\mathrm{.}08,$PepsiCo Inc.,$0\mathrm{.}66],[$EBay$,1\mathrm{.}28,$Qualcomm,$1\mathrm{.}38],[$ExxonMobil$,1\mathrm{.}36,$Starbucks,$0\mathrm{.}80],[$Gap $($The$)$ Inc.,$1\mathrm{.}43,$Verizon,$0\mathrm{.}44],[$Gap $($The$)$ Inc.,$0\mathrm{.}96,$Walmart,$0\mathrm{.}32],[$Intel$,0\mathrm{.}82,$Xerox,$1\mathrm{.}68],[,,,]]$

Required:

a$.$ Calculate Francisco's beta of each of his portfolios.

b$.$ Franscisco Alvarez wants to know what return he should expect from the hightech and necessity portfolio. If the risk$-$free rate of return is $2\%,$ and the expected return on the market portfolio is $6\%,$ calculate the returns on the different portfolios. Comment on your results.Question $6$

Francisco Alvarez, an individual investor, wishes to assess the risk of two portfolios he is considering. The first is a portfolio that Francisco called $$the necessities,$$ which includes investments in five stocks listed in Table $2$: Costco, Exxon, PepsiCo, Starbucks, and Walmart. Francisco$$high$-$tech$$ portfolio also contains five stocks: Amazon, Apple, Intel, Microsoft, and Qualcomm. In each portfolio, Francisco invests the same proportion $(20\%)$ in each of the five stocks.

Table $2$: Beta Coefficients for Selected Stocks $($April $2020)$

Assets Beta Stock Beta

Amazon $1\mathrm{.}35$ Int$$l Business Machines $1\mathrm{.}24$

Apple $1\mathrm{.}17$ JPMorgan Chase & Co $1\mathrm{.}18$

Bank of America $1\mathrm{.}73$ Microsoft $0\mathrm{.}95$

Costco $0\mathrm{.}70$ Netflix $0\mathrm{.}97$

Disney $1\mathrm{.}08$ PepsiCo Inc. $0\mathrm{.}66$

EBay $1\mathrm{.}28$ Qualcomm $1\mathrm{.}38$

ExxonMobil $1\mathrm{.}36$ Starbucks $0\mathrm{.}80$

Gap $($The$)$ Inc. $1\mathrm{.}43$ Verizon $0\mathrm{.}44$

Gap $($The$)$ Inc. $0\mathrm{.}96$ Walmart $0\mathrm{.}32$

Intel $0\mathrm{.}82$ Xerox $1\mathrm{.}68$

Required:

a$.$ Calculate Francisco$$s beta of each of his portfolios.

b$.$ Franscisco Alvarez wants to know what return he should expect from the high$-$tech and necessity portfolio. If the risk$-$free rate of return is $2\%,$ and the expected return on the market portfolio is $6\%,$ calculate the returns on the different portfolios. Comment on your results.