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Contemporary Financial Management
14th Edition
ISBN: 9781337090582
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: Cengage Learning
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Chapter 8, Problem 18P
Summary Introduction
To determine: Expected beta of portfolio.
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You are going to invest $50,000 in a portfolio consisting of assets X, Y, and Z, as follows;
What is the expected return of this portfolio?
Calculate the beta coefficient of the portfolio
Asset A offers an expected rate of return of 25%, with a standard deviation of 20%. Asset B offers an expected
return of 15% with a standard deviation of 30%. The risk-free asset offers 5%. Suppose that the correlation
coefficient between asset A and asset B equals 1. Please specify the portfolio weight on asset A in the optimal
risky portfolio.
Your answer should be a entered as a decimal rounded to two decimal places, e.g., enter 63% as 0.63.
a)Identify two investment alternatives that can be combined in a portfolio. Assume a 50-50 investment allocation in each investment alternative.b) Compute the expected return of the portfolio thus formed.c) Compute the portfolio’s beta. Is the portfolio aggressive or defensive?
Chapter 8 Solutions
Contemporary Financial Management
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