Score: 0 of 5 pts 6 of 8 (3 complete) Score: 33.33%, 15 of 45 pts P8-26 (similar
ID: 2620520 • Letter: S
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Score: 0 of 5 pts 6 of 8 (3 complete) Score: 33.33%, 15 of 45 pts P8-26 (similar to) Question Help Expected return of a portfolio using beta. The beta of four stocks-G, H,I, and J are 0.47, 0.76, 1.07, and 1.61, respectively and the beta of portfolio 1 is 0.98 the beta of portfolio 2 is 0.82, and the beta of portfolio 3 is 1.11. What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of 4.0% (risk-free rate) and a market premium of 10.0% (slope of the line)? What is the expected return of stock G? % (Round to two decimal places.)Explanation / Answer
expected return of stock G
=risk free rate+beta*market premium
=4%+0.47*10%
=8.70%
expected return of stock H
=risk free rate+beta*market premium
=4%+0.76*10%
=11.60%
expected return of stock I
=risk free rate+beta*market premium
=4%+1.07*10%
=14.70%
expected return of stock J
=risk free rate+beta*market premium
=4%+1.61*10%
=20.10%
expected return of portfolio 1
=risk free rate+beta*market premium
=4%+0.98*10%
=13.80%
expected return of portfolio 2
=risk free rate+beta*market premium
=4%+0.82*10%
=12.20%
expected return of portfolio 3
=risk free rate+beta*market premium
=4%+1.11*10%
=15.10%
The above is the answer..
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