Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Textbook Question
Chapter 6, Problem 23SP
(Portfolio beta and security market line) You own a portfolio consisting of the stocks below:
The risk-free rate is 3 percent. Also, the expected return on the market portfolio is 11 percent.
- a. Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stocks’ expected returns, where the weights are the percentage invested in each stock.)
- b. Calculate the portfolio beta.
- c. Given the foregoing information, plot the security market line on paper. Plot the stocks from your portfolio on your graph.
- d. From your plot in part (c), which stocks appear to be your winners and which ones appear to be your losers?
- e. Why should you consider your conclusion in part (d) to be less than certain?
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Students have asked these similar questions
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…
(Portfolio beta and security market line) You own a portfolio consisting of the following stocks: The risk-free rate is 8 percent. Also, the expected return on the market portfolio is 18 percent.
a. Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stock's expected return, where the weights are the percentage invested in each stock.)
b. Calculate the portfolio beta.
c. Given the preceding information, plot the security market line on paper. Plot the stocks from your portfolio on your graph.
d. From your plot in part c, which stocks appear to be your winners and which ones appear to be losers?
e. Why should you consider your conclusions in part d to be less than certain?
a. The expected return of your portfolio is%. (Round to two decimal places.)
Data table
Stock
1
2
(...))
Percentage of Portfolio
30%
35%
5%
15%
15%
Beta
1.05
0.80
1.25
0.62
1.62
3
4
5
(Click on the icon in order to copy its contents…
Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B).
Thank you for your help.
Chapter 6 Solutions
Foundations Of Finance
Ch. 6 - a. What is meant by the investors required rate of...Ch. 6 - Prob. 2RQCh. 6 - What is a beta? How is it used to calculate r, the...Ch. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - What effect will diversifying your portfolio have...Ch. 6 - (Expected return and risk) Universal Corporation...Ch. 6 - (Average expected return and risk) Given the...
Ch. 6 - (Expected rate of return and risk) Carter, Inc. is...Ch. 6 - (Expected rate of return and risk) Summerville,...Ch. 6 - Prob. 5SPCh. 6 - Prob. 9SPCh. 6 - Prob. 10SPCh. 6 - Prob. 11SPCh. 6 - Prob. 12SPCh. 6 - Prob. 14SPCh. 6 - (Capital asset pricing model) Using the CAPM,...Ch. 6 - Prob. 16SPCh. 6 - Prob. 17SPCh. 6 - a. Compute an appropriate rate of return for Intel...Ch. 6 - (Estimating beta) From the graph in the right...Ch. 6 - Prob. 20SPCh. 6 - Prob. 21SPCh. 6 - (Capital asset pricing model) The expected return...Ch. 6 - (Portfolio beta and security market line) You own...Ch. 6 - (Portfolio beta) Assume you have the following...Ch. 6 - Prob. 1MCCh. 6 - Prob. 2MCCh. 6 - Prob. 3MCCh. 6 - Prob. 4MCCh. 6 - Prob. 5MCCh. 6 - Prob. 6MCCh. 6 - Prob. 7MCCh. 6 - Prob. 8MCCh. 6 - Prob. 9MCCh. 6 - Prob. 10MCCh. 6 - Prob. 11MC
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