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FinanceQ&A LibraryYou invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%.A. Compute the beta of the portfolio.B. Compute the required return of the portfolio.Question

Asked Dec 3, 2019

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You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%.

A. Compute the beta of the portfolio.

B. Compute the required return of the portfolio.

Step 1

**A.**

Number of Stocks = 5

Weight of Each Stock (W) = 1 ÷ 5 = 0.2

Beta_{1} = 0.8

Beta_{2} = -1.3

Beta_{3} = 0.95

Beta_{4} = 1.2

Beta_{5} = 1.4

Calculation of Beta of the Portfolio is as follows:

Step 2

**B.**

Beta = 0.61

Risk-Free Return = 3%

Market Return = 7%

Calculation of the req...

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