16. If the risk free rate is expected to be 2% in 2016 and the expected return o
ID: 2744307 • Letter: 1
Question
16. If the risk free rate is expected to be 2% in 2016 and the expected return of the market is expected to be 10%, a) what will the expected return for Yahoo be this year? b) What will Google’s expected return be in 2016? c) What will be the beta of the portfolio you constructed in Question 12 and its expected return in 2016?
Month
Monthly Returns (%)
Month
Monthly Returns (%)
Month
Monthly Returns (%)
Ended
Yahoo
S&P500
Ended
Yahoo
S&P500
Ended
Yahoo
S&P500
Dec-07
-13.241
-0.219
-0.692
Dec-06
-5.442
-5.018
1.403
Dec-05
-2.610
2.457
0.036
Nov-07
-13.794
-1.980
-4.182
Nov-06
2.544
1.767
1.899
Nov-05
8.818
8.806
3.778
Oct-07
15.861
24.632
1.590
Oct-06
4.193
18.534
3.257
Oct-05
9.249
17.595
-1.668
Sep-07
18.093
10.096
3.736
Sep-06
-12.314
6.174
2.575
Sep-05
1.561
10.650
0.810
Aug-07
-2.237
1.029
1.497
Aug-06
6.227
-2.087
2.376
Aug-05
-0.060
-0.612
-0.912
Jul-07
-14.302
-2.430
-3.097
Jul-06
-17.758
-7.805
0.616
Jul-05
-3.781
-2.172
3.717
Jun-07
-5.470
4.979
-1.660
Jun-06
4.463
12.778
0.133
Jun-05
-6.855
6.088
0.143
May-07
2.354
5.628
3.486
May-06
-3.630
-11.035
-2.875
May-05
7.826
26.032
3.179
Apr-07
-10.387
2.885
4.428
Apr-06
1.612
7.164
1.342
Apr-05
1.770
21.877
-1.896
Mar-07
1.393
1.938
1.116
Mar-06
0.624
7.551
1.244
Mar-05
5.051
-3.979
-1.769
Feb-07
9.007
-10.379
-1.950
Feb-06
-6.735
-16.188
0.271
Feb-05
-8.350
-3.900
2.103
Jan-07
10.846
8.908
1.511
Jan-06
-12.264
4.291
2.648
Jan-05
-6.555
1.468
-2.437
Month
Monthly Returns (%)
Month
Monthly Returns (%)
Month
Monthly Returns (%)
Ended
Yahoo
S&P500
Ended
Yahoo
S&P500
Ended
Yahoo
S&P500
Dec-07
-13.241
-0.219
-0.692
Dec-06
-5.442
-5.018
1.403
Dec-05
-2.610
2.457
0.036
Nov-07
-13.794
-1.980
-4.182
Nov-06
2.544
1.767
1.899
Nov-05
8.818
8.806
3.778
Oct-07
15.861
24.632
1.590
Oct-06
4.193
18.534
3.257
Oct-05
9.249
17.595
-1.668
Sep-07
18.093
10.096
3.736
Sep-06
-12.314
6.174
2.575
Sep-05
1.561
10.650
0.810
Aug-07
-2.237
1.029
1.497
Aug-06
6.227
-2.087
2.376
Aug-05
-0.060
-0.612
-0.912
Jul-07
-14.302
-2.430
-3.097
Jul-06
-17.758
-7.805
0.616
Jul-05
-3.781
-2.172
3.717
Jun-07
-5.470
4.979
-1.660
Jun-06
4.463
12.778
0.133
Jun-05
-6.855
6.088
0.143
May-07
2.354
5.628
3.486
May-06
-3.630
-11.035
-2.875
May-05
7.826
26.032
3.179
Apr-07
-10.387
2.885
4.428
Apr-06
1.612
7.164
1.342
Apr-05
1.770
21.877
-1.896
Mar-07
1.393
1.938
1.116
Mar-06
0.624
7.551
1.244
Mar-05
5.051
-3.979
-1.769
Feb-07
9.007
-10.379
-1.950
Feb-06
-6.735
-16.188
0.271
Feb-05
-8.350
-3.900
2.103
Jan-07
10.846
8.908
1.511
Jan-06
-12.264
4.291
2.648
Jan-05
-6.555
1.468
-2.437
Explanation / Answer
beta = cov(x,market)/variance market
return = risk free rate + beta(market retun - risk free rate)
beta portfolio = (return on portfolio - risk free rate)/(return on market - risk free rate)
Beta Weight Yahoo 0.960 60% Google 1.18 40% Risk Free rate 2% Annual Market return 8.6% Expected return Yahoo 8.32% Google 9.78% Portfolio 8.91% beta 1.05Related Questions
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