Expected Return and Risk-free Weight

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• CAPM (Capital Asset Pricing Model)

  Beta of stock= 1.5 beta of risk free asset= 0 expected return on stock=r1= 16% or 0.16 expected return on risk free asset=r2= 4% or 0.04 Let the weights of stock and the risk free asset in portfolio be w1 and w2

• Basic concepts in Finance

  352900 Calculating expected return, risk-free rate and more... 1. A stock has an expected return of 13 percent, its beta is 0.55, and the risk-free rate is 7.15 percent. What must the expected return on the market be? 2.

• Using CAPM to calculate expected return, weight of a stock, and beta.

  = 0.0625*1.05=0.065625 d) 2.55=w*1.05 Solving we get w=2.43 Weight of stock = 2.43 Risk free asset weight = 1-2.43=-1.43 The negative sign for risk free assets means that we have borrowed from the market at the risk free rate and invested in

• Calculating Expected Return & Standard Deviation

  Weight of Risk free asset, A=wa=10%=0.10 Weight of Second Asset B=wb=90%=0.90 Expected return from asset A=E(Ra)=5% Standard deviation of stock A=sa=0% (As risk free asset has 0 standard deviation) Expected return from stock B=E(Rb)=13% Standard

• Finance questions: Calculate expected return on a portfolio, the weight of a stock, beta and more.

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  If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, what is the expected return of a portfolio that consists of 60% Intel stock and 40% Boeing stock, according to the CAPM?

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  Let wx be the weight of X and wy be the weight of Y, then the weight of risk free asset is 1-wx-wy The expected return on the market is the weighted average return.

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  11: PROBLEM 12 Beta 1.25 Expected Return on the Market 11.50% Risk-Free Rate 3.40% Expected Return on the Stock = 13.53% CHAPTER 12: PROBLEM 1 Beta 1.15 Risk-Free Rate 4.50% Expected Return on the Market 11% Cost of Equity

• Financial Services questions: Relative Valuation, Analyzing a Portfolio, CAPM and more...

  portfolio Beta = Ws * Beta i.e. 0.5 = Ws * 0.9 Ws = 0.56 Thus, the weight of stock is 0.56, and weight of Risk free asset is Wf = 0.44 c. If a portfolio of the two assets has an expected return of 11%, what is its beta?