Ariel holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock’s beta, is listed in the following table: Stock Investment Beta Standard Deviation Omni Consumer Products Co. (OCP) $3,500 0.90 18.00% Tobotics Inc. (TI) $2,000 1.70 11.00% Three Waters Co. (TWC) $1,500 1.10 18.00% Flitcom Corp. (FC) $3,000 0.60 25.50% A. Suppose all stocks in Ariel’s portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio? Tobotics Inc. Three Waters Co. Flitcom Corp. Omni Consumer Products Co. B. Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk? Flitcom Corp. Tobotics Inc. Omni Consumer Products Co. Three Waters Co. C. If the risk-free rate is 4% and the market risk premium is 5.5%, what is Ariel’s portfolio’s beta and required return? Fill in the following table: Beta Required Return Ariel’s portfolio
Ariel holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock’s beta, is listed in the following table: Stock Investment Beta Standard Deviation Omni Consumer Products Co. (OCP) $3,500 0.90 18.00% Tobotics Inc. (TI) $2,000 1.70 11.00% Three Waters Co. (TWC) $1,500 1.10 18.00% Flitcom Corp. (FC) $3,000 0.60 25.50% A. Suppose all stocks in Ariel’s portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio? Tobotics Inc. Three Waters Co. Flitcom Corp. Omni Consumer Products Co. B. Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk? Flitcom Corp. Tobotics Inc. Omni Consumer Products Co. Three Waters Co. C. If the risk-free rate is 4% and the market risk premium is 5.5%, what is Ariel’s portfolio’s beta and required return? Fill in the following table: Beta Required Return Ariel’s portfolio
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 18PROB
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All of the parts are under one question and therfore can be answered per your policy.
8. Portfolio risk and return
Ariel holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock’s beta, is listed in the following table:
|
Stock
|
Investment
|
Beta
|
Standard Deviation
|
|---|---|---|---|
| Omni Consumer Products Co. (OCP) | $3,500 | 0.90 | 18.00% |
| Tobotics Inc. (TI) | $2,000 | 1.70 | 11.00% |
| Three Waters Co. (TWC) | $1,500 | 1.10 | 18.00% |
| Flitcom Corp. (FC) | $3,000 | 0.60 | 25.50% |
A. Suppose all stocks in Ariel’s portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?
Tobotics Inc.
Three Waters Co.
Flitcom Corp.
Omni Consumer Products Co.
B. Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk?
Flitcom Corp.
Tobotics Inc.
Omni Consumer Products Co.
Three Waters Co.
C. If the risk-free rate is 4% and the market risk premium is 5.5%, what is Ariel’s portfolio’s beta and required return? Fill in the following table:
|
|
Beta
|
Required Return
|
|---|---|---|
| Ariel’s portfolio |
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