Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three attractive stocks and want to create a portfolio investment in these three stocks. The details of the stocks are given below:Company nameVolatility(Standard deviation)Weight in PortfolioCorrelation with the market portfolioMeezan Bank Ltd0.2512%0.40Lucky Cement Ltd0.3525%0.60KE Ltd0.4013%0.50 The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate based on central bank’s discount rate is 3%Calculate each of the stock’s expected return and risk (beta) as compared to the market.

1. Calculation of beta as compared to the market : Beta for each stock can be computed with the…

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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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Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three attractive stocks and want to create a portfolio investment in these three stocks. The details of the stocks are given below:

Company name	Volatility (Standard deviation)	Weight in Portfolio	Correlation with the market portfolio
Meezan Bank Ltd	0.25	12%	0.40
Lucky Cement Ltd	0.35	25%	0.60
KE Ltd	0.40	13%	0.50

The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate based on central bank’s discount rate is 3%

Calculate each of the stock’s expected return and risk (beta) as compared to the market.

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