We have the following investments in our portfolio: Investment Amount Expected R

Question

We have the following investments in our portfolio:

Investment                        Amount                              Expected Return              Beta

A Stock                               $2,000                                 8%                                        .80

B Stock                               $2,500                                 12%                                     .95

C Stock                               $2,500                                 14%                                     1.20

D Stock                               $3,000                                 16%                                     1.50

What is the expected return on this portfolio? What is the beta of this portfolio? Does this portfolio have more or less systematic risk than an average asset? Please show your calculations.

Explanation / Answer

Investment Amount Weight Expected Return Beta Proportional expected return Proportional Beta A B C D = A x B E = A x C A Stock $2,000 20% 8% 0.8 1.60% 0.16 B Stock $2,500 25% 12% 0.95 3.00% 0.2375 C Stock $2,500 25% 14% 1.2 3.50% 0.3 D Stock $3,000 30% 16% 1.5 4.80% 0.45 Total $10,000 100% 12.90% 1.1475 Portfolio Expected Return 12.90% Portfolio Beta 1.1475 or                        1.15 rounded This Portfolio systematic risk is more than an average assets, since its beta is more than 1

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.