EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 8, Problem 8PROB
Summary Introduction
Portfolio beta is used to measure the portfolio’s overall systematic risk of an investment which equals the weighted average of all individual stock’s beta coefficient in a portfolio.
The risk-free rate is 3% and market
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Currently, the risk-free return is 3 percent, and the expected market rate of return is 9 percent. What is the expected return of the following three-stock portfolio?
Account Invested Beta
$350,000 1.0
$250,000 0.2
$400,000 2.5
Currently, the risk free return is 5 percent and the expected market rate of return is 12 percent. What is the expected return of the following three-stock portfolio?
Amount invested Beta
P400,000 1.5
500,000 2.0
100,000 4.0
Currently the risk-free return is 3 percent and the market risk premium is 8 percent. What is the required rate of return on the following two-stock portfolio?
Amount Invested
Beta
$70,000
1.4
$30,000
0.4
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?arrow_forwardWhat is the expected return for the following portfolio? (State your answer in percent with two decimal places.) Stock Expected returns Investment AAA 35% $500,000 BBB 29% $1,300,000 CCC 18% $1,200,000 DDD 7% $1,500,000 O.17.13% O.19.40% O.21.01% O.22.21% O.23.88%arrow_forwardCurrently, the risk-free return is 2 percent, and the expected market rate of return is 11 percent. What is the expected return of the following three-stock portfolio? Do not round intermediate calculations. Round your answer to two decimal places. Investment Beta $ 200,000 1.0 100,000 0.1 700,000 2.9 %arrow_forward
- You expect the risk-free rate to be 4 percent and the market return to be 10 percent. You also have the following information about three stocks. Current Expected Expected Stock Beta Price Price Dividend U 1.5 $10 $11.50 $1.00 N 1.1 $27 $30 $0.00 Ο 0.8 $35 $36 $1.50 (Question 2 of 2) What is the required rate of return (based on the CAPM) for an equally weighted portfolio of the three stocks? (Enter your answer as a percentage, i.e., "10.25" for 10.25 percentarrow_forwardYou are holding a portfolio with the following investments and betas: Stock Dollar investment Beta А $250,000 1.25 B 200,000 1.70 с 400,000 0.85 D 150,000 -0.25 Total investment $1,000,000 The market's required return is 10% and the risk-free rate is 3%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places. %arrow_forwardYou expect the risk-free rate to be 4 percent and the market return to be 10 percent. You also have the following information about three stocks. Stock Beta Current Expected Expected Price Price Dividend U 1.5 $10 $11.50 $1.00 N 1.1 $27 $30 $0.00 Ο 0.8 $35 $36 $1.50 (Question 1 of 2) Based on the required rate of return estimated with the CAPM and your expected returns based on prices and dividends, select an investment strategy for each stock: Stock U Stock N [Choose ] [Choose ] Stock O [Choose ]arrow_forward
- Calculate the weighted average expected return of the portfolio. Stock Investment Expected ReturnA $20,000 15%B $4,000 10%C $26,000 12%arrow_forwardYou are holding a portfolio with the following investments and betas: Stock Dollar investment Beta A $250,000 1.30 B 200,000 1.70 C 400,000 0.75 D 150,000 -0.30 Total investment $1,000,000 The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places.arrow_forwardIf risk free rate is 7% and the market return is 15%. Compute the expected and required return on each stock, determine the appropriate trading strategy Stock Price today Price in year 1 Dividend in year 1 Beta A 25 27 1 1 B 40 45 2 0.8 C 15 17 0.50 1.2arrow_forward
- You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B с Investment Beta $202,000 303,000 505,000 Beta of the portfolio 1.59 Expected rate of return 0.59 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 15 percent and that the risk-free rate is 7 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) 1.16 %arrow_forwardAssume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - R;) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 1.28, then this stock's expected return should be A) 10.53% B) 14.24% 23.15% 6.59%arrow_forwardAssume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - Rf) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 1.28, then this stock's expected return should be -- A) 10.53% B) 14.24% 23.15% 6.59%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY