The UIB company desires to construct a portfolio with 15% expected return. The portfolio is to consist of some combination of security X and security Y, which have the following expected returns, standard deviations of returns, Security X Security Y Market Risk free rate Expected return 8% 19% 13% 2% Standard deviations 6% 15% 4% Beta 0.94 1.5 1. Determine the beta of the portfolio 2. Should UIB invest in the portfolio. Justify. 3. Compute the correlation between security Y and the market portfolio

The UIB company desires to construct a portfolio with 15% expected return. The portfolio is to consist of some combination of security X and security Y, which have the following expected returns, standard deviations of returns, Security X Security Y Market Risk free rate Expected return 8% 19% 13% 2% Standard deviations 6% 15% 4% Beta 0.94 1.5 1. Determine the beta of the portfolio 2. Should UIB invest in the portfolio. Justify. 3. Compute the correlation between security Y and the market portfolio

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 18P

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The UIB company desires to construct a portfolio with 15% expected return. The portfolio is to consist of some combination of security X and security Y, which have the following expected returns, standard deviations of returns, and betas: Security X 8% 6% 0.94 Security 19% 15% 1.50 Market portfolio 13% 4% Risk free return 2% Expected return Standard deviation Beta Determine the beta of the portfolio
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