You own a portfolio consisting of the following stocks:

STOCK PERCENTAGE OF PORTFOLIO BETA Expected Return

1 20% 1.00 16%

2 30% 0.85 14%

3 15% 1.20 20%

4 25% 0.60 12%

5 10% 1.60 24%

The risk-free rate is 7 percent. Also, the expected return on the market portfolio is 15.5 percent.

a) Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stock's expected return, where the weight are the percentage invested in each stocks.)

b) Calculate the portfolio beta

c) Given the information preceeding, plot the security market line on paper. Plot the stocks from your portfolio on your graph.

d) From your plot in part c, which stocks appear to be your winners and which ones appear to be losers?

e) Why should you consider your calculation in part d, to be less than certain?