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 Engro Ltd 10% 0.30 0.5 FFC Ltd 20% 0.40 1.5 Fatima Fertilizer Ltd 15% 0.30 1.0 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. What should be the expected return of the portfolio based on values calculated in part a. c. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio? Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why or why not?
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 Engro Ltd 10% 0.30 0.5 FFC Ltd 20% 0.40 1.5 Fatima Fertilizer Ltd 15% 0.30 1.0 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. What should be the expected return of the portfolio based on values calculated in part a. c. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio? Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why or why not?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 13P
Related questions
Question
100%
Assume you are a
Company name |
Volatility (Standard deviation) |
Weight in Portfolio |
Correlation with the market portfolio |
Engro Ltd |
10% |
0.30 |
0.5 |
FFC Ltd |
20% |
0.40 |
1.5 |
Fatima Fertilizer Ltd |
15% |
0.30 |
1.0 |
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.
- What should be the expected return of the portfolio based on values calculated in part a.
c. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio? - Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why or why not?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT