- a. An individual plans to invest in Stock A and/or Stock B. Theexpected returns are 9% and 10% for Stocks A and B, respectively.The betas are 0.95 and 1.25 for Stocks A and B, respectively. Findthe expected return and beta for the portfolio if the individualinvests 75% of his funds in Stock A. (E(Rp) = 9.25%,βp = 1.025)
b. Suppose the individual described in Part a, forms a portfolioconsisting of three assets: 10% invested in Stock A, 30% investedin Stock B, and 60% invested in a risk-free asset with a return of6%. What is the expected return and beta for this portfolio?
- a. An individual plans to invest in Stock A and/or Stock B. Theexpected returns are 9% and 10% for Stocks A and B, respectively.The betas are 0.95 and 1.25 for Stocks A and B, respectively. Findthe expected return and beta for the portfolio if the individualinvests 75% of his funds in Stock A. (E(Rp) = 9.25%,βp = 1.025)
b. Suppose the individual described in Part a, forms a portfolioconsisting of three assets: 10% invested in Stock A, 30% investedin Stock B, and 60% invested in a risk-free asset with a return of6%. What is the expected return and beta for this portfolio?
Related questions
| 1) A portfolio is invested 10 percent in Stock G, 50 percent in Stock J, and 40 percent in Stock K. The expected returns on these stocks are 7 percent, 13 percent, and 15 percent, respectively. What is the portfolio's expected return? (Round your answer to 2 decimal places. (e.g., 32.16))
4) A stock has an expected return of 15.5 percent, its beta is 1.65, and the expected return on the market is 12.6 percent. What must the risk-free rate be? (Round your answer to 2 decimal places. (e.g., 32.16))
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Keith holds a portfolio that is invested equally in three stocks (Wd = Wa = Wi = 1/3). Each stock is described in the following table:
| Stock | Beta | Standard Deviation | Expected Return |
| DET | 0.7 | 25% | 8% |
| AIL | 1.0 | 38% | 10% |
| INO | 1.6 | 34% | 13.5% |
An analyst has used market and firm-specific information to make expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns.
The risk-free rate (Rf) is 6% and the market risk premium (Rp) is 4%. Use the following graph with the security market line (SML) to plot each stock's beta and expected return.
A stock is in equilibrium if its required return ___________ its expected return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst expected return estimates, stock INO is ___________, stock AIL is equilibrium, and stock DET is _________.
