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ervlet/quiz?quiz action-takeQuiz&quiz;_probGuid-ONAPCOA801010000004194edb0070000

ID: 2615392 • Letter: E

Question

ervlet/quiz?quiz action-takeQuiz&quiz;_probGuid-ONAPCOA801010000004194edb00700008ctx-Fan.He-00278c Attempts: Average: 1/4 4. Portfolio risk and return Aa Aa Emma holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stook's beta, is listed in the following table: Stock Andalusian Limited (AL) Kulatsu Motors Co. (KMC) Three Waters Co. (TWC) Mainway Toys Co. (MTC) Investment $3,500 $2,000 $1,500 $3,000 Beta 0.90 1.30 1.10 0.40 Standard Deviation 12.00% 11.00% 18.00% 19.50% Suppose all stocks in Emma's portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio? Suppose all stocks in the portfolio were equally weighted Which of these stocks would have the least amount of standalone risk? O Andalusian Limited O Kulatsu Motors Co. O Mainway Toys Co. O Three Waters Co. kulatsu Motors Co. O Andalusian Limited O Three Waters Co O Mainway Toys Co If the risk-free rate is 7% and the market risk premium is 9%, what is Emma's portfolio's beta and Fll in the following table Beta Required Return Emma's portfolio

Explanation / Answer

company

Weight

beta

weight*beta

A

0.25

0.9

0.225

K

0.25

1.3

0.325

M

0.25

1.1

0.275

T

0.25

0.4

0.1

K will contribute highest in portfolio beta

2-

company

Weight

beta

weight*beta

A

0.25

12

3

K

0.25

11

2.75

M

0.25

18

4.5

T

0.25

19.5

4.875

T will contribute highest in portfolio beta

company

Weight

beta

weight*beta

A

0.25

0.9

0.225

K

0.25

1.3

0.325

M

0.25

1.1

0.275

T

0.25

0.4

0.1

portfolio beta

sum of weight*beta

0.925

required rate of return

risk free rate+(market return-risk free rate)*portfolio beta

7+(9)*.925

15.33

company

Weight

beta

weight*beta

A

0.25

0.9

0.225

K

0.25

1.3

0.325

M

0.25

1.1

0.275

T

0.25

0.4

0.1

K will contribute highest in portfolio beta

2-

company

Weight

beta

weight*beta

A

0.25

12

3

K

0.25

11

2.75

M

0.25

18

4.5

T

0.25

19.5

4.875

T will contribute highest in portfolio beta

company

Weight

beta

weight*beta

A

0.25

0.9

0.225

K

0.25

1.3

0.325

M

0.25

1.1

0.275

T

0.25

0.4

0.1

portfolio beta

sum of weight*beta

0.925

required rate of return

risk free rate+(market return-risk free rate)*portfolio beta

7+(9)*.925

15.33