Consider a portfolo consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected returm of each stock b. Using your answer from part (a). calculate the expected return of the portfolo. c. What is the beta of the portfolio? d. Using your answer from part (c). calculate the expected return of the portfolo and verify that it matches your answer to part (b). a. Compute the beta and expected return of each stock. (Round to two decimal places.) E TITIT Data table Portfolio Weight (A) 0.28 Volatility (B) 13% Correlation (C) Beta (D) Expected Return (E) НЕС Сор 0.33 Green Widget 0.39 27% 0.61 (Click on the following icon e in order to copy its contents into a spreadsheet) Alive And Well 0.33 14% 0.43 Portfolio Weight 0.28 Correlation with the Market Portfolio Volatility 13% НЕС Сегр Green Widget 0.33 b. Using your answer from part (a). calculate the expected return of the portfolio. 0.39 27% 0.61 Alive And Well 0.33 14% 0.43 The expected return of the portfolio is%. (Round to two decimal places.) c. What is the beta of the portfolio? The beta of the portfolio is (Round to three decimal places.) Print Done d. Using your answer from part (c). calculate the expected return of the portfolio and verify that it matches your answer to part (b). The expected returm of the portfolio is%. (Round to two decimal places.)
Consider a portfolo consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected returm of each stock b. Using your answer from part (a). calculate the expected return of the portfolo. c. What is the beta of the portfolio? d. Using your answer from part (c). calculate the expected return of the portfolo and verify that it matches your answer to part (b). a. Compute the beta and expected return of each stock. (Round to two decimal places.) E TITIT Data table Portfolio Weight (A) 0.28 Volatility (B) 13% Correlation (C) Beta (D) Expected Return (E) НЕС Сор 0.33 Green Widget 0.39 27% 0.61 (Click on the following icon e in order to copy its contents into a spreadsheet) Alive And Well 0.33 14% 0.43 Portfolio Weight 0.28 Correlation with the Market Portfolio Volatility 13% НЕС Сегр Green Widget 0.33 b. Using your answer from part (a). calculate the expected return of the portfolio. 0.39 27% 0.61 Alive And Well 0.33 14% 0.43 The expected return of the portfolio is%. (Round to two decimal places.) c. What is the beta of the portfolio? The beta of the portfolio is (Round to three decimal places.) Print Done d. Using your answer from part (c). calculate the expected return of the portfolio and verify that it matches your answer to part (b). The expected returm of the portfolio is%. (Round to two decimal places.)
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 6P
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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
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Transcribed Image Text:Consider a portfolio consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%.
a. Compute the beta and expected return of each stock.
b. Using your answer from part (a), calculate the expected return of the portfolio.
c. What is the beta of the portfolio?
d. Using your answer from part (c), calculate the expected return of the portfolio and verify that it matches your answer to part (b).
a. Compute the beta and expected return of each stock. (Round to two decimal places.)
TITLT
Data table
Portfolio Weight
(A)
Volatility
(B)
Correlation
(C)
Expected Return
(E)
%
Beta
(D)
НЕС Согр
0.28
13%
0.33
Green Widget
(Click on the following icon a in order to copy its contents into a spreadsheet.)
0.39
27%
0.61
%
Portfolio Weight
Alive And Well
0.33
14%
0.43
Volatility
13%
Correlation with the Market Portfolio
НЕС Согр
Green Widget
0.28
0.33
b. Using your answer from part (a), calculate the expected return of the portfolio.
0.39
27%
0.61
Alive And Well
0.33
14%
0.43
The expected return of the portfolio is %. (Round to two decimal places.)
c. What is the beta of the portfolio?
The beta of the portfolio is. (Round to three decimal places.)
Print
Done
d. Using your answer from part (c), calculate the expected return of the portfolio and verify that it matches your answer to part (b).
The expected return of the portfolio is %. (Round to two decimal places.)
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