Jason Jackson is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. He is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: . a. Calculate the betas for portfolios A and B. b. If the risk-free rate is 1.8% and the market return is 7.8%, calculate the required retum for each portfolio using the CAPM. Review Only Click the icon to see the Worked Solution. a. The beta of portfolio A is (Round to three decimal places.) The beta of portfolio B is (Round to three decimal places.) b. The required return of portfolio A is %. (Round to two decimal places.) The required return of portfolio B is %. (Round to two decimal places.) 9: Data Table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Portfolio Weights Asset Asset Beta Portfolio A Portfolio B 1 1.34 15% 34% 2 0.72 33% 12% 3 1.27 13% 18% 4 1.15 15% 27% 5 0.88 24% 9% Total 100% 100%

Jason Jackson is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. He is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: . a. Calculate the betas for portfolios A and B. b. If the risk-free rate is 1.8% and the market return is 7.8%, calculate the required retum for each portfolio using the CAPM. Review Only Click the icon to see the Worked Solution. a. The beta of portfolio A is (Round to three decimal places.) The beta of portfolio B is (Round to three decimal places.) b. The required return of portfolio A is %. (Round to two decimal places.) The required return of portfolio B is %. (Round to two decimal places.) 9: Data Table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Portfolio Weights Asset Asset Beta Portfolio A Portfolio B 1 1.34 15% 34% 2 0.72 33% 12% 3 1.27 13% 18% 4 1.15 15% 27% 5 0.88 24% 9% Total 100% 100%

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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You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
Jack Ma is attempting to evaluate two possible portfolios – both consisting of the same five assets but held in different proportions. He is particularly interested in using beta to compare the risk of the portfolios and in this regard has gathered the following data. assets assets beta Portfolio A Portfolio B 1 1.30 10% 30% 2 0.70 30% 10% 3 1.25 10% 20% 4 1.10 10% 20% 5 0.90 40% 20% a) Calculate the betas for portfolio A and B. b) Compare the risk of each portfolio to the market as well as to each other C) Which portfolio is more risky and why?
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The firm wishes to estimate the beta of a portfolio that consists of two assets X and Y. The investment manager of the firm has gathered the following information on the two assets. Securities Rate of Return Standard Deviation Beta X 20% 20% 1.5 Y 10% 30% 1.0 Risk free asset 5% Calculate: The beta of the portfolio if 75% of the funds are invested in Y and 25% in X The portfolio expected return and the portfolio beta if you invest 35 % in X, 45% in Y and 20 % in the risk-free asset Assuming the CAPM applies, if the market’s expected return is 13 percent, the risk free rate is 8% and stock X’s required rate of return is 16%, what is the stock’s beta coefficient?
You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets. PORTFOLIO EXPECTED RETURN STANDARD DEVIATION Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% a) For each portfolio, calculate the risk premium per unit of risk that you expect to receive [(E(R) –RFR)/ơ]. Assume that the risk free rate is 3.0%. b) Using…