Question
. You are interested in three particular stocks which have the following possible returns and probabilities: Stock A Stock B Stock C Prob. -30% -16%
. You are interested in three particular stocks which have the following possible returns and probabilities: Stock A Stock B Stock C Prob. -30% -16% -2% .05 -12% -5% 0% .10 2% -1% 6% .15 6% 8% 9% .20 12% 10% 12% .25 20% 15% 15% .15 50% 25% 18% .10 Suppose you form a portfolio consisting of $25,000 in stock A, $25,000 in stock B, and $50,000 in stock B. Calculate the rate of return for this portfolio under each possibility above. For example, in the first line of the table, we would multiply -30% times the weight of stock a, then add -16% times the weight of stock b, then -2% times the weight of stock C. This is the expected return of the portfolio under the first possible occurrence with a probability of .05. Repeat for all possible occurrences. Then calculate the expected return and standard deviation of the portfolio based on the seven possible outcomes and their probabilities. If Stock A has a beta of 1.2, stock B has a beta of 1.8 and stock C has a beta of 0.6, what would be the beta of your portfolio? (14 pts.)
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