Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A has200 shares outstanding, a price per share of $3.00, an expected return of 16%, and a stdev of30%. Stock B has 300 shares outstanding, a price per share of $4.00, an expected return of10%, and a stdev of 15%. The correlation coefficient PAB = 0.4.a) What is the (market) beta of each stock?b) Assume that the risk-free interest rate on margins (i.e., borrowing cost) is 0. I have$100. I decide to invest $200 in Stock A, and borrow the rest. What is the beta of myportfolio?

Explanation for Part (a): Market Beta of Each StockIn a two-stock market, the beta of each stock…

Answered: Consider a world with only two risky…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2Q: Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a...

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An investor has an opportunity to invest in two risky assets and a risk-free asset. Theexpected return of the two risky assets are μ1 = 0.12, μ2 = 0.15. Their standarddeviations are σ1 = 0.05 and σ2 = 0.1, and the correlation coefficient between theirreturn is 0.2. The risk-free rate is 0.05. Suppose the investor has $1000 and he wantsto hold a portfolio with expected return of 0.1. If the investor is risk averse, how muchshould he invest in the two risky assets and the risk-free asset?
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