2 You own a portfolio consisting of the following stocks:ExpectedReturnStock12345Percentageof Portfolio5%25152035Beta1.200.651.001.40.9014%10O Stocks#3 and #4 are the winnersO All stocks are losersO Only stock #4 is the winnerO All stocks are winners121611The risk-free rate is 3 percent. Also, the expected return on the marketportfolio is 13.8 percent.From plotting the SML for these data, which stocks appear to be your winnersand which ones appear to be losers?

CAPM gives the required rate of return based on the risk of the stocks and tells which are…

Answered: 2 3 4 5 5% 25 15 20 35 1.20 0.65 1.00…

Business

Finance

2 3 4 5 5% 25 15 20 35 1.20 0.65 1.00 1.4 0.90 14% 10 12 16 11

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

You own a portfolio consisting of the following stocks:
Expected
Return
Stock
1
2
34
5
Percentage
of Portfolio
5%
25
15
20
35
Beta
1.20
0.65
1.00
1.4
0.90
14%
10
O Stocks#3 and #4 are the winners
O All stocks are losers
O Only stock #4 is the winner
O All stocks are winners
12
16
11
The risk-free rate is 3 percent. Also, the expected return on the market
portfolio is 13.8 percent.
From plotting the SML for these data, which stocks appear to be your winners
and which ones appear to be losers?

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