Calculating Beta - Choices
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Your portfolio consists of $100,000 invested in a stock which has a beta = 0.8, $150,000 invested in a stock which has a beta = 1.2, and $50,000 invested in a stock which has a beta = 1.8. The risk-free rate is 7 percent. Last year this portfolio had a required rate of return of 13 percent. This year nothing has changed except for the fact that the market risk premium has increased by 2 percent (two percentage points). What is the portfolio's current required rate of return?
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Solution Summary
Computations done by hand using formula. No references.
Solution Preview
First calculate the portfolio beta
Portfolio beta = weighted average of the betas of the invested stocks
Thus, Portfolio beta = ...
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