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Portfolio and Stock Beta

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Consider the following information about a five stock portfolio:

Stock Percent of Portfolio Beta
A) 20% 1.6
B) 25% 1.2
C) 10% 1.0
D) 30% 0.9
E) 15% 0.8

a. Determine the portfolio beta for the above portfolio. Show all work.
b. Determine the expected return on the portfolio based on a Treasury bill yield of 4% and an expected market return of 13%. Show all work.
c. The CFO of your firm asks you to precisely explain the methodology that you have used in both part a) and part b) above. Please do this.
d. Determine the expected return on stock E using the same market parameters given in part b). Discuss how the risk and return of this stock compares to the market portfolio.

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Solution Summary

Provides steps necessary to evaluate the stock percent of portfolio beta.

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a. Portfolio Beta = sum of ( percent invested* Beta)
= .20*1.6+.25*1.2 + .10*1+.30*.9+.15*.8 = 1.11

b. Expected Return = Treasury Bill + (market return - treasury ...

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  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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