1. You have a $54,000 portfolio consisting of Intel, GE, and Con Edison. You put

Question

1. You have a $54,000 portfolio consisting of Intel, GE, and Con Edison. You put $21,600 in Intel, $13,600 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta?

2. Consider the single factor APT. Portfolio A has a beta of 1.1 and an expected return of 25%. Portfolio B has a beta of .7 and an expected return of 21%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________

3. The expected return on the market portfolio is 18%. The risk-free rate is 10%. The expected return on SDA Corp. common stock is 17%. The beta of SDA Corp. common stock is 1.25. Within the context of the capital asset pricing model, _________.

4.

If the simple CAPM is valid and all portfolios are priced correctly, which of the situations below is possible? Consider each situation independently, and assume the risk-free rate is 5%.

A)

B)

C)

D)

5. You consider buying a share of stock at a price of $24. The stock is expected to pay a dividend of $1.32 next year, and your advisory service tells you that you can expect to sell the stock in 1 year for $27. The stock's beta is 0.6, rf is 10%, and E[rm] = 20%. What is the stock's abnormal return?

Explanation / Answer

Solution :- 1 Company Value Weights Beta Weights*Beta Intel 21600 0.400 1.3 0.5200 GE 13600 0.252 1 0.2519 Con Edison 18800 0.348 0.8 0.2785 54000 1.0504 Therefore the protfolio beta = 1.0504 Working Notes Company Weights Intel (21600/54000) 0.400 GE (13600/54000) 0.252 Con Edison (18800/54000) 0.348 As per chegg policy there is need to solve only one question in case of many question So feel free to ask any query regarding it in comments and ask other questions as seperate

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