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Two Companies are Wells Fargo and IBM Wells Fargo Beta 1.03 and IBM is 0.87 If you made an equal dollar investment in each stocks

Two Companies are Wells Fargo and IBM

Wells Fargo Beta 1.03 and IBM is 0.87

  1. If you made an equal dollar investment in each stocks what would be the beta of your portfolio?
  2. If you made 70% of dollar investment in stock A, and 30% of dollar investment in stock B, what would be the beta of your portfolio? Please show your work.
  3. Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on these two stocks. Assumptions and Data: Note that you will needthe risk-free rate and the market risk premium. Assume a 5% market risk premium. To get the current yield on 10-year Treasury securities go to Finance!Yahoos (www.finance.yahoo.com)-click onMarket Data - Bonds. You will use the current yield on 10-year Treasury securities as the risk-free rate to estimate the required rate of return on stocks.
  4. Compare the required return on these stocks calculated using CAPM in question #3 against their historical return over the last 52 weeks, found in the Yahoo!Finance- Key Statistics.Is there a difference between these returns?Is this a problem?Why is there a difference?

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