5) Describe your portfolio risk. For this you need to compute your portfolio’s b

Question

5) Describe your portfolio risk. For this you need to compute your portfolio’s beta and its required rate of return (Assume Rf is 2.75% and the market risk premium is 5%)

Stock                        Return                    Purchase Price                    Ending Price

BA                              11.68% $129.97 $145.15

CHRW                      -3.95% $7.58                                         $68.75

COST                         -0.12% $156.60                                   $156.41

DIS                             10.80% $105.97 $117.42

IBM                           -6.55% $144.96 $135.47

LTC                            -5.50% $43.85 $41.44

MATX                      40.50% $37.06 $52.10

XEC                            19.69%                                     $98.27                                      $117.62

Explanation / Answer

Return on portfolio (Average Return) = [11.68-3.95-0.12+10.8-6.55-5.5+40.5+19.69]/8

= 66.55/8

= 8.32% (Portfolio’s Required rate of return)

..

As per CAPM,

Rp = Rf + (Rm-Rf)*Be

8.32 = 2.75 + 5*Be

Be = 5.57/5

Be = 1.114 ..ans (Portfolio’s Beta)

..

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