https://ssobncollege.com/bes × Importance of Skill variety in a x Aplia: Student
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https://ssobncollege.com/bes × Importance of Skill variety in a x Aplia: Student Question rvlet/quiz?quiz action-takeQuiz&quiz;_probGuid-QNAPCOA801010000003e43f320080000&ctx-brown1-0012;& 5. Portfolio risk and return Aa Aa Emma holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: Stock Omni Consumer Products Co. (OCP) Zaxatti Enterprises (ZE) Water and Power Co. (WPC) Flitcom Corp. (FC) Investment $3,500 $2,000 $1,500 $3,000 Beta 0.90 1.70 1.15 0.30 Standard Deviation 9.00% 11-50% 18.00% 25.50% Suppose all stocks in Emma's portfolio were equally weighted. least market risk to the portfolio? Suppose all stocks in the portfolio were equally weighted Which of these stocks would have the least amount of Which of these stocks would contribute the standalone risk? O Water and Power Co. O Omni Consumer Products Co. O Flitcom Corp O Zaxatti Enterprises O Flitcom Corp O Zaxatti Enterprises O Omni Consumer Products Co O Water and Power Co. If the risk-free rate is 7% and Full in the following table: the market risk premium is 9%, what is Emma's portfolio's beta and required return? Beta Required Return Emma's portfolio 0.615 0.918 0.780 MAC 280012 F5 F6 F7 F8 FVOExplanation / Answer
a.
Beta is a measure of systematic risk taht is market risk. A Stock with lower beta means lower market risk and a stock with higher beta means high market risk. Beta of Fitcom corp. is lowest among four stock. So, Fitcom corp. contribute lowest market risk in portfolio.
Option (C) is correct answer.
b.
Standard deviation is a measure of standalone risk. A lower standard deviation mean lower standalone risk and higher standard deviation mean higher standalone risk. Standard deviation of Omni consumer product Co. has lowest standard deviation, so Omni consumer product Co. has leas standalone risk.
Option (C) is correct answer.
c.
Expected beta of portfolio = (35% × 0.90) + (20% × 1.70) + (15% × 1.15) + (30% × 0.30)
= 0.315 + 0.34 + 0.1725 + 0.09
= 0.918
Beta of portfolio is 0.918.
d.
Required rate of return = 7% + (9% × 0.918)
= 7% + 8.26%
= 15.26%
Required rate of return of portfolio is 15.26%.
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