You own a portfolio consisting of the following stocks:

Stock % of Portfolio Beta Historical Return Required Return

1 13% 1.15 .11

2 44% 0.95 .08

3 19% 1.60 .14

4 24% 1.30 .12

The risk-free rate is 5% and the expected market return is 10%.

a. Calculate the required return for each stock.

b. Calculate the historical return on the portfolio.

c. Calculate the portfolio beta.

d. Calculate the required return on the portfolio.

e. Draw the SML. Plot the historical returns and the required returns of each stock and the portfolio.

f. Which investments appear to be winners and which ones appear to be losers?

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