A. What is the beta on each portfolio? B. Which portfolio is riskier? C. If the

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A. What is the beta on each portfolio? B. Which portfolio is riskier? C. If the risk-free rate of interest were 3.5 percent and the market risk premium were 7 percent, what rate of return would you expect to earn of the portfolios? s People Window Help Take a Test-Patrick Quigley Secure l https://www.mathd.com/Student/PlayerTest.aspx?testid-172973966&centerwin;=yes FINC 300 (01): Fall 2017 Test: Exam 2 Submit Test This Question: 6 pts 14 of 30 (1 complete) his Test 100 pts possi Question Help * (Portfolio beta and CAPM) You are putting together a portfolio made up of four different stocks However, you are considering two possible weightings a. What is the beta on each portfolio? b. Which portfolio is riskier? c. If the risk-free rate of interest were 3.5 percent and the market risk premium were 7 percent, what rate of return would you expect to ean from each of the portfolios? a. The beta on the first portolio is(Round to three decimal places.) The beta on the second portfolio is(Round to three decimal places.) b. Which portfolio is riskier? (Select the best choice below.) O A. The second portfolio because the beta is larger. O B. The first portfolio because the beta is larger. O C. The first portfolio because the beta is smaller. 0 D. The second portfolio because the beta is smaller. C. If the risk-free rate of interest were 35% and the market risk premium were 7%, then the rate of return on the first portfolio is expected to be %. (Round to two decimal places) if the risk-free rate o interest were 35%and the market risk premium were 7% then the rate of return on the second portfolio is expected to be %. (Round to two decimal places.) Click to select your answer(s).

Explanation / Answer

A. beta on first portfolio = 2.1*0.08 + 0.95*0.08 + 0.4*0.42 - 1.6*0.42 = -0.260

beta on second portfolio = 2.1*0.42 + 0.95*0.42 + 0.4*0.08 - 1.6*0.08 = 1.185

The second portfolio since beta is larger

expected return on first portfolio = 3.5 - 0.26*7 = 1.68 %

expected return on second portfolio = 3.5 + 1.185*7 = 11.80 %

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