You have a portfolio that consist of the following securities: Stock Expected Re

Question

You have a portfolio that consist of the following securities:

Stock               Expected Return       Price               Number of Shares

AAA                10.5%                         55                    500

BB                   5.00%                         25                    1000

RAD               12.0%                         100                 200

FIN                  9.00%                         75                    400

CAT                7.00%                         45                    900

Given that the risk free rate is 11.95% and the risk premium on the market is 5.5%, what is the beta of the portfolio?

Explanation / Answer

Portfolio return expected return =rf+beta(RiskPremium)

8.44%=11.95%+beta(5.5%)

beta of portfolio = -64

Expected Return Market Value Weight Portfolio Return AAA 10.50% 27500 19.23% 0.02 BB 5% 25000 17.48% 0.01 RAD 12% 20000 13.99% 0.02 FIN 9% 30000 20.98% 0.02 CAT 7% 40500 28.32% 0.02 143000 100.00% 8.44%

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