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Secure I https//www.mathod.com/Student/PlayerTest.aspx?testld- 181975049&centerwin-yes; Ira Randall & 7/22/18 2:58 PM MBA 579 (Summer 2018) Submit Test Test: Exam 2 This Question: 6 pls 14 of 30 (10 complete) This Test: 100 pts possible Question Help posable weightings a. What is the beta on each portlolio? b. Which portfolio is riskier? ?. the risk-free rate of interest were 4 5 percent and the market risk premium, were 6 percent, what rate of return would you expect to earn from each of the portiolios? a. The beta on the fist portfolio is ?(Round to three decimal places) The beta on the second portfolio is(Round to three decimal places) b. Which portiolio is riskier? (Select the best choice below.) 0 A. The second portfolio because the beta is smaler O B. The second portfolio because the beta is larger O C. The first portfolio because the beta is smaller O D. The first portfolio because the beta is larger C. If the risk-free rate of interest were 4 5% and the market risk premium were 6%, then the rate of return on the first portfolio is expected to be% (Round to teo decimal places) cick to select your answers) break 5 6 7 8 9 0

Explanation / Answer

a.

The beta on the First Portfolio = (2.2 * 20%) + (0.8 * 20%) + (0.45 * 30%) + (-1.4 * 30%)

= 0.44 + 0.16 + 0.135 - 0.42

= 0.32.

The beta on the Second Portfolio = (2.2 * 30%) + (0.8 * 30%) + (0.45 * 20%) + (-1.4 * 20%)

= 0.66 + 0.24 + 0.09 - 0.28

= 0.71.

b.

The Second Portfolio is risker than the First Portfolio since, the portfolio beta is larger for second portfolio than the first portfolio.

Hence, the answer is B.

c.

Risk free rate of interest = 4.5%

Market risk premium = 6%

Beta of the First portfolio = 0.32

As per CAPM,

Rate of return on the first portfolio = Risk free rate of interest + (Portfolio beta * Market risk premium)

= 4.5% + (0.32 * 6%)

= 4.5% + 1.92%

= 6.42%

Hence, rate of return on the first portfolio is expected to be 6.42%.

Risk free rate of interest = 4.5%

Market risk premium = 6%

Beta of the Second portfolio = 0.71

As per CAPM,

Rate of return on the second portfolio

= Risk free rate of interest + (Portfolio beta * Market risk premium)

= 4.5% + (0.71 * 6%)

= 4.5% + 4.26%

= 8.76%

Hence, rate of return on the second portfolio is expected to be 8.76%.

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