4. Portfolio risk and returnn Aa Aa Cheyenne holds a $10,000 portfolio that cons

Question

4. Portfolio risk and returnn Aa Aa Cheyenne holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table Beta 0.90 1.30 1.15 0.50 Standard Deviation 15.00% 11.50% 18.00% 19.50% Stock Perpetualcold Refrigeration Co. (PRC) Tobotics Inc. (TI) Three Waters Co. (TWC) Flitcom Corp. (FC) Investment $3,500 $2,000 $1,500 $3,000 Suppose all stocks in Cheyenne'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? Tobotics Inc. Flitcom Corp O Perpetualcold Refrigeration Co O Flitcom Corp O Perpetualcold Refrigeration Co Tobotics Inc. Three Waters Co Three Waters Co If the risk-free rate is 7% and the market risk premium is 9%, what is Cheyenne's portfolio's beta and required return? Fil in the following table Required Return Beta 0.898 0.898 0.763 0.602 1.347 Cheyenne's portfolio 15.08%

Explanation / Answer

Flitcom

Tobotics

beta = (3500 * 0.9 + 2000*1.3 + 1500 *1.15 + 3000*0.5)/(3500 + 2000 + 1500 + 3000) = 0.898

required return = 7% + 0.898*9% = 15.08%

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