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RISK AND RETURN You own a portfolio consisting of the following stocks. Stock Percentage of portfolio (%) Beta Expected Return (%) A 20 1 15
RISK AND RETURN
- You own a portfolio consisting of the following stocks.
Stock | Percentage of portfolio (%) | Beta | Expected Return (%) |
A | 20 | 1 | 15 |
B | 30 | 0.85 | 13 |
C | 50 | 1.20 | 10 |
The risk free is 6 percent. Also the expected return on the market portfolio is 15 percent. The expected return for the portfolio is 12.2 percent.
- Calculate the portfolio beta.
- Draw the security market line and show where the securities fit on the graph. State which stock is a fair value, undervalued and overvalued. (I need answer in graph too please)
(Hint: the security market line is a positively sloped straight line displaying the relationship between expected return and beta)
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