Please answer all question Question 11 pts You wish to invest in a portfolio of

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Please answer all question

Question 11 pts

You wish to invest in a portfolio of stocks A (50%) and B (50%). The risk free rate is 4%.

A       B

Expected return (%) 10       20

Beta 1.2     1.8

Correlation coefficient between returns   0.3

            What’s the portfolio return?

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Question 22 pts

What’s the portfolio beta in the last question?

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Question 32 pts

The risk reduction through diversification in a portfolio of two stocks

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Question 42 pts

A company’s equity beta is 1.2. The risk-free rate is 5% and the market risk premium is 6%. What is the company’s cost of equity?

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Question 52 pts

What is the expected return on the market portfolio at a time when the risk free rate (e.g., T-Bill rate) is 4% and a stock with a beta of 1.5 is expected to yield 16%?

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Question 61 pts

What’s the risk premium for the stock in the last question?

Explanation / Answer

First question- Portfolio return ll be- 15%

second question- portfolio beta 1.6

Third question- decreases as the correlation between the stocks rises

Fourth question- company cost of equity- 11%

Fifth question- 12%

sixth question-12 %

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