Purchase Solution

Required return on this portfolo

Not what you're looking for?

Ask Custom Question

Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume that the market risk premium is equal to four percent, and the risk-free rate also equals four percent. What is the required return on this portfolio?

Purchase this Solution
Solution Summary

This response calculates the required return for portfolio P.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

View More Free Quizzes
Related BrainMass Solutions

  • Required Rate of Return

    We get 5% = Market Return - 8% ( Risk free rate) This gives market return as 13% Required return on stock = 8% + 5% X1.3 = 14.5% The solution explains how to calculate the required rate of return on market and stock.

  • required return

    If the risk free rate rises to 9%, what will the required rate of return on the company's stock? = 9%+1.3*(14%-8%) =16.8% III. If the beta of this company were 0.8, what would the its required rate of return?

  • Stocks : Required Rate of Return and Expected Return

    235871 Determining Required Rate of Return and Expected Return: Example A stock has a beta of 1.5, the market risk premium is 9%, and the risk-free rate is 5%. a. What is the required rate of return on this stock? b.

  • Expected return using CAPM

    If the rate of return available on risk-free assets is 4 percent and you expect the rate of return on the market portfolio to be 14 percent, should you invest in this mutual fund? Show your work and explain why or why not.

  • Important Information About Expected Returns and Betas for Investment Selection

    b 7.06% - 2.00% 7.00% 7.00% Yes, expected return higher than required return on stock. c 5.04% -0.67 2.00% 7.00% 5.66% No, expected return lower than required return on stock.

  • James River: Required Preferred Stock Return

    Required return on James River preferred stock= Dividend/Market price*100 =3.38/45.25 *100 =7.47% This solution provides a neat, step by step response for calculating required return for a preferred stock.

  • Bond Valuation, Dividend Discount Model, Required Return, CAPM

    What is the required return on James River preferred stock? A14.

  • Rate of return, growth rate, return on equity

    Rate of return __________ % Sustainable growth rate = Return on equity*Plowback rate .07 = Return on equity * .50 .14 = Return on equity Rate of return = 14 percent This solution illustrates how to compute a stock's rate of return, growth rate

  • Stock Required Rate of Return

    What would be the portfolio's required rate of return following this change?

  • Required rates of return given beta of stock

    What is the required rate of return on a stock with a beta of 0.8%. round answer to two decimal places. ______________% What is the required rate of return on a stock with a beta of 1.6?

View More Related Solutions