use EXCEL to solve the problem and show the formula! 8-25. (Computing the portfolio beta and plotting the security market line) You own a port-folio consisting of the following stocks:StockPercentage of PortfolioBetaReturn Expected110%1.0012%2250.75113151.30154300.60201.2014The risk-free rate is 4 percent. Also, the expected return on the market portfolio is10 percent.a. Calculate the expected return of your portfolio. (Hint: The expected return of aportfolio 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 preceding information, plot the security market line on paper. Plot thestocks from your portfolio on your graph.d. From your plot in part c, which stocks appear to be your winners, and which onesappear to be your losers?e. Why should you consider your conclusion in part d to be less than certain?

Data given: Stock % of Portfolio Beta Return Expected 1 10% 1 12% 2 25% 0.75 11% 3 15% 1.3…

Answered: a. Calculate the expected return of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 25P

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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?
You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
The following shows beta for several companies. Calculate each stock’s expected rate ofreturn using CAPM, assuming the risk free rate is 4% and the risk premium for the marketportfolio is 7%. What is your portfolio beta if you construct an equally weighted portfolio using allstocks? What can you say about this portfolio relative to the market?Stock BetaApple 1.35Johnson & Johnson 0.69IBM 1.10
Presently, the risk-free rate is 4 percent (Rf )and the expected return on the market portfolio (E(Rm))is 9 percent. Market analysts’ return expectations for four stocks are listed here, together with each stock’s beta. If the analysts’ expectations are correct, which stocks (if any) are overvalued? Which (if any) are undervalued? (Hint: You need to calculate the required return on each stock) Stocks Expected Return Beta Required Rate Return Underpriced? Overpriced? Or Correctly Priced? 1. General Motors (GM) 5.10% 1.2 2. McDonald's Corp (MCD) 7.60% 0.72 3. Boeing Company (BA) 13.20% 1.5
The average return on the Market is 12% while the market risk premium is 7%. What is the require rate of return of the portfolio? (In percentage) Blue Co. has a collection of shares that is publicly trade. The value of each security and its stock beta are as follows: stock Investment Beta CEB 3,000,000 2 SMC 3,000,000 1.2 SCC 800,000 .5 MTB 1,200,000 1
An analyst has modeled the stock of a company using a FamaFrench three-factor model and has estimated that ai 5 0, bi 5 0.7,ci 5 1.2, and di 5 0.7. Suppose that the daily risk-free rate isapproximately equal to zero, the market return is 11%, the returnon the SMB portfolio is 3.2%, and the return on the HML portfoliois 4.8% on a particular day. The stock had an actual return of 16.9%on that day. What is the stock’s predicted return for that day?(14.9%) What is the stock’s unexplained return for the day? (2%)

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