10 Question 6Suppose that an investor has £1,000,000 to invest in a portfolio containing stocks A, Band a risk-free asset. The investor must invest all her money, and she is using the CapitalAsset Pricing Model (CAPM) to make predictions of the expected return-beta relationship.Her objective is to create a portfolio that has an expected return of 14% and which has abeta of 0.75. If stock A has an expected return of 30% and a beta of 1.9, stock B has anexpected return of 20% and a beta of 1.4, and the risk-free rate is 8%, how much moneywill she invest in stock A? Explain your answer and show your calculations.

Portfolio Return: It is computed by the sum of individual returns of the portfolio security that…

Answered: expected return of 20% and a beta of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 25P

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What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share). Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero). Buy a one-year, 5 percent note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).
Question 6 Suppose that an investor has £1,000,000 to invest in a portfolio containing stocks A, B and a risk-free asset. The investor must invest all her money, and she is using the Capital Asset Pricing Model (CAPM) to make predictions of the expected return-beta relationship. Her objective is to create a portfolio that has an expected return of 14% and which has a beta of 0.75. If stock A has an expected return of 30% and a beta of 1.9, stock B has an expected return of 20% and a beta of 1.4, and the risk-free rate is 8%, how much money will she invest in stock A? Explain your answer and show your calculations.
QUESTION 10 An investor wishes to construct a portfolio by borrowing 35 percent of his original wealth and investing all the money in a stock index. The return on the risk-free asset is 4.0 percent, and the expected return on the stock index is 15 percent. Calculate the expected return on the portfolio. a. 9.50 percent b. 18.25 percent c. 11.15 percent d. 15.00 percent e. 18.85 percent

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expected return of 20% and a beta of 1.4, and the risk-free rate is 8%, how much money will she invest in stock A? Explain your answer and show your calculations.