Explore BrainMass

Explore BrainMass

    A money manager is managing the account of a large investor; calculate Stock D's estimated beta.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    A money manager is managing the account of a large investor; the investor holds the following stocks:

    STOCK AMOUNT INVESTED ESTIMATED BETA
    A $2,000,000 0.80
    B $5,000,000 1.10
    C $3,000,000 1.40
    D $5,000,000 ????

    The portfolio's required rate of return is 17%; the risk-free rate is 7% and the required return on the average stock in the market is 14%.

    Calculate Stock D's estimated beta.

    a. 1.256

    b. 1.389

    c. 1.429

    d. 2.026

    e. 2.154

    Show all work.

    © BrainMass Inc. brainmass.com June 3, 2020, 4:58 pm ad1c9bdddf
    https://brainmass.com/business/beta-and-required-return-of-a-project/determining-stock-estimated-beta-10008

    Solution Preview

    First we calculate the portfolio Beta using SML:
    ER = Rf+(Rm-Rf)*Beta
    i.e. 17 = 7 + (14-7)*Beta or 10 = 7*B
    Then Beta = ...

    Solution Summary

    This solution assists with calculating Stock D's estimated beta.

    $2.19

    ADVERTISEMENT