Question
Your brother wants to invest in the stock market. Initially, he wanted to put all his piggy bank money into one company, however you told
Your brother wants to invest in the stock market. Initially, he wanted to put all his "piggy bank" money into one company, however you told him that it would be better to hold a portfolio of many different shares. He is quite stubborn and only wants to invest in his favorite 4 companies. He has decided the amount of wealth he is going to put into each, and he has asked you to estimate the expected return on his proposed portfolio. You have collected the betas for all of his companies. See the information of the portfolio below:
| Company | Total Value of shares | Beta | Standard deviation |
| Adidas | $400 | 2 | 45% |
| Tesla | $200 | 1.2 | 23% |
| Wholefoods | $400 | 1.7 | 69% |
| GoSun | $400 | 1.4 | 88% |
In addition, you found the 10-yr government bond yield to be 5% p.a. and you estimate the market risk premium to be 7%. What is the expected return of your brother's portfolio?
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Intermediate Accounting
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas
9th Edition
9781259722660
