The following common stocks are available for investment: a. If you invest 20 percent of your funds in each of the first four securities, and 10 percent in each of the last two, what is the beta of your portfolio? b. If the risk-free rate is 8 COMMON STOCK (Ticker Symbol) BETA Nanyang Business Systems (NBS) 1.40 Yunnan Garden Supply, Inc. (YUWHO) 0.80 Bird Nest Soups Company (SLURP) 0.60 Wacho.com! (WACHO) 1.80 Park City Cola Company (BURP) 1.05 Oldies Records, Ltd. (SHABOOM) 0.90percent and the expected return on the market portfolio is 14 percent, what will be the portfolio’s expected return?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
The following common stocks are available for investment:
a. If you invest 20 percent of your funds in each of the first four securities, and 10 percent
in each of the last two, what is the beta of your portfolio?
b. If the risk-free rate is 8 COMMON STOCK (Ticker Symbol) BETA
Nanyang Business Systems (NBS) 1.40
Yunnan Garden Supply, Inc. (YUWHO) 0.80
Bird Nest Soups Company (SLURP) 0.60
Wacho.com! (WACHO) 1.80
Park City Cola Company (BURP) 1.05
Oldies Records, Ltd. (SHABOOM) 0.90percent and the expected return on the market portfolio is
14 percent, what will be the portfolio’s expected return?
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