A small market consists of three stocks, A, B, and C. and their financial data and projection are presented below. Assume CAPM holds. Stock Number of shares Stock Price Beta A 750 33 1.2 B 220 51 0.8 C 460 19 1.4 Economic condition Probability A B C Boom 20% 20% 22% 23% Normal 50% 15% 10% 12% Recession 30% 2% 5% 7% Find: a) the expected return and standard deviation on this portfolio. b) the expected return on the market using portfolio beta if Rf=5%.

A small market consists of three stocks, A, B, and C. and their financial data and projection are presented below. Assume CAPM holds. Stock Number of shares Stock Price Beta A 750 33 1.2 B 220 51 0.8 C 460 19 1.4 Economic condition Probability A B C Boom 20% 20% 22% 23% Normal 50% 15% 10% 12% Recession 30% 2% 5% 7% Find: a) the expected return and standard deviation on this portfolio. b) the expected return on the market using portfolio beta if Rf=5%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 22P

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