Suppose News Corporation shares have a beta of 1 .67, whereas CBA shares have a

Question

Suppose News Corporation shares have a beta of 1 .67, whereas CBA shares have a beta of 0.79. If the risk-free interest rate is 3.8% and the expected return of the market portfolio is 1 1.4%, according to the CAPM, a. what is the expected return of News Corp shares? b. what is the expected return of CBA shares? C. What is the beta of a portfolio that consists of 65% News Corp shares and 35% CBA shares? d, what is the expected return of a portfolio that consists of 65% News Corp shares and 35% CBA shares? a. What is the expected return of News Corp shares? News Corp's expected return is b. What is the expected return of CBA shares? CBA's expected return is%Round to one decimal place.) C. What is the beta of a portfolio that consists of 65% News Corp shares and 35% CBA shares? The portfolio beta is(Round to two decimal places.) d. What is the expected retum of a portfolio that consists of 65% News Corp shares and 35% CBA shares? The expected return of the portfolio is L 1%. (Round to one decimal place.) ai(Round to one decimal place.)

Explanation / Answer

As per CAPM,

a) Required return = Risk free rate of return + beta( Market return less risk free rate of return)

For News corp shares

Required return = 3.8% + 1.67(11.4%-3.8%)

=3.8% + 1.67(7.6%)

=3.8%+12.69%

=16.49%

For CBA

b) Required return = 3.8% + 0.79(11.4%-3.8%)

=3.8% + 0.79(7.6%)

=3.8%+6.004%

=9.804%

c) Beta of portfolio = Weight1*Beta of News corp shares + Weight2*Beta of CBA shares

=0.65*1.67 + 0.35*0.79

=1.0855+0.2765

=1.362

d) Expected return of portfolio = Weight1*Return of News corp shares + Weight2*Return of CBA shares

=0.65*16.49% + 0.35*9.804%

=10.7185% + 3.4314%

=14.15%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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