1. You own a stock portfolio invested 25% in stock Q, 20% in stock R, 15% in stock S, and 40% in stock T. The betas for these stocks are .84, 1.17, 1.11, and 1.36 respectively. What is the portfolio beta?

2. (Using CAPM) A stock has a beta of 1.05, the expected return on the market is 11 % and the risk-free rate is 5.2 %. What must the expected return on the stock be?

3. (Using CAPM) A stock has an expected return of 10.2%, the risk-free rate is 4.5%, and the market risk premium is 8.5%. What must the beta of this stock be?

4. (Using CAPM) A stock has an expected return of 13.5%, its beta is 1.17 and the risk-free rate is 5.5%. What must the expected return on the market be?

5. (Using CAPM) A stock has an expected return of 14%, its beta is 1.45, and the expected return on the market is 11.5%. What must the risk-free rate be?

Solution Preview

1. The portfolio beta is the weighted average of the individual stock beta.
Portfolio beta = 0.25 X .84 + 0.20 X 1.17 + 0.15 X 1.11 + 0.4 X 1.36 = 1.1545

2. Using CAPM, Expected return = Rf ...

Solution Summary

The solution explains the calculation of beta, expected return, risk free rate using the CAPM equation

Security expectedreturns and betas
Security E(R) Beta
1 10% 1.00
2 12% 1.20
3 13% 1.10
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a. Write the equation of

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Year Stock X Stock Y Market
2006 14% 13% 12%
2007 19% 7% 10%
2008 -16% -5% -12%
2009 3% 1% 1%
2010 2

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(See attached file for full problem description with chart)
For parts a, b, and c, use the above Table.
a. Draw the Security Market Line.
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c. Plot the two securities o

5.13 in Ch. 5
Expected return
Year Stock L Stock M
2010 14% 20%
2011 14 18
2012 16 16
2013 17 14
2014 17 12
2015 19 10
P5รข?"13 Portfolio return and standard deviation Jamie Wong is considering building an investment portfolio containing two stocks, L and

A stock has a beta of 1.25 and an expected return of 14%. A risk free asset currently earns 2.1%.
1) What is the expected return on a portfolio that is equally invested in two assets?
2) If a portfolio of the two assets has a beta of .93 what are the portfolio weights?
3) If a portfolio of the two assets has an expected ret