Anna holds a portfolio comprising the following 3 stocks: X, Y and Z. Amount $'000 2,000 1,000 500 (a) (b) (c) (d) Investment Security X Security Y Security Z Determine the expected return of security X. Calculate the return of Anna's portfolio. Beta 1.3 Calculate the beta of Anna's portfolio. 1.0 0 Expected Return 10% 2% To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio's systematic risk? How would portfolio expected return change (higher or lower) if you add this security?

Anna holds a portfolio comprising the following 3 stocks: X, Y and Z. Amount $'000 2,000 1,000 500 (a) (b) (c) (d) Investment Security X Security Y Security Z Determine the expected return of security X. Calculate the return of Anna's portfolio. Beta 1.3 Calculate the beta of Anna's portfolio. 1.0 0 Expected Return 10% 2% To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio's systematic risk? How would portfolio expected return change (higher or lower) if you add this security?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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