Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter7: Nonlinear Optimization Models
Section: Chapter Questions
Problem 63P
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Question
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
|
|---|---|---|---|
| Andalusian Limited (AL) | $3,500 | 0.80 | 15.00% |
| Kulatsu Motors Co. (KMC) | $2,000 | 1.50 | 12.00% |
| Western Gas & Electric Co. (WGC) | $1,500 | 1.20 | 16.00% |
| Makissi Corp. (MC) | $3,000 | 0.50 | 22.50% |
Suppose all stocks in Ariel’s portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?
Makissi Corp.
Andalusian Limited
Western Gas & Electric Co.
Kulatsu Motors Co.
Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of standalone risk?
Western Gas & Electric Co.
Makissi Corp.
Andalusian Limited
Kulatsu Motors Co.
If the risk-free rate is 4% and the market risk premium is 6%, 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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