The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected return of each stock. b. Using your answer from part a, calculate the expected return of the portfolio. c. What is the beta of the portfolio? d. Using your answer from part c, calculate the expected return of the portfolio and verify that it matches your answer to part b. Question content area bottom Part 1 a. Compute the beta and expected return of each stock. (Round to two decimal places.) Portfolio Weight (A) Volatility (B) Correlation (C) Beta (D) Expected Return (E) HEC Corp 0.27 11% 0.33 enter your response here enter your response here% Green Widget 0.33 29% 0.71 enter your response here enter your response here% Alive And Well 0.40 11% 0.53 enter your response here enter your response here% Part 2 b. Using your answer from part a, calculate the expected return of the portfolio. The expected return of the portfolio is enter your response here%. (Round to two decimal places.) Part 3 c. What is the beta of the portfolio? The beta of the portfolio is enter your response here. (Round to three decimal place (Click on the following icon in order to copy its contents into a spreadsheet.) Portfolio Weight Volatility Correlation with the Market Portfolio HEC Corp 0.27 11% 0.33 Green Widget 0.33 29% 0.71 Alive And Well 0.40 11% 0.53
The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected return of each stock. b. Using your answer from part a, calculate the expected return of the portfolio. c. What is the beta of the portfolio? d. Using your answer from part c, calculate the expected return of the portfolio and verify that it matches your answer to part b. Question content area bottom Part 1 a. Compute the beta and expected return of each stock. (Round to two decimal places.) Portfolio Weight (A) Volatility (B) Correlation (C) Beta (D) Expected Return (E) HEC Corp 0.27 11% 0.33 enter your response here enter your response here% Green Widget 0.33 29% 0.71 enter your response here enter your response here% Alive And Well 0.40 11% 0.53 enter your response here enter your response here% Part 2 b. Using your answer from part a, calculate the expected return of the portfolio. The expected return of the portfolio is enter your response here%. (Round to two decimal places.) Part 3 c. What is the beta of the portfolio? The beta of the portfolio is enter your response here. (Round to three decimal place (Click on the following icon in order to copy its contents into a spreadsheet.) Portfolio Weight Volatility Correlation with the Market Portfolio HEC Corp 0.27 11% 0.33 Green Widget 0.33 29% 0.71 Alive And Well 0.40 11% 0.53
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 6P
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Consider a portfolio consisting of the following three stocks:
The volatility of the market portfolio is
LOADING...
.10%
and it has an expected return of
8%.
The risk-free rate is
3%.
a. Compute the beta and expected return of each stock.
b. Using your answer from part
a,
calculate the expected return of the portfolio.c. What is the beta of the portfolio?
d. Using your answer from part
c,
calculate the expected return of the portfolio and verify that it matches your answer to part
b.
Question content area bottom
Part 1
a. Compute the beta and expected return of each stock. (Round to two decimal places.)
|
|
Portfolio Weight
(A)
|
Volatility
(B)
|
Correlation
(C)
|
Beta
(D)
|
Expected Return
(E)
|
|
HEC Corp
|
0.27
|
11%
|
0.33
|
enter your response here
|
enter your response here%
|
|
Green Widget
|
0.33
|
29%
|
0.71
|
enter your response here
|
enter your response here%
|
|
Alive And Well
|
0.40
|
11%
|
0.53
|
enter your response here
|
enter your response here%
|
Part 2
b. Using your answer from part
a,
calculate the expected return of the portfolio.The expected return of the portfolio is
enter your response here%.
(Round to two decimal places.)Part 3
c. What is the beta of the portfolio?
The beta of the portfolio is
enter your response here.
(Round to three decimal place(Click on the following icon
in order to copy its contents into a
spreadsheet.)
|
|
Portfolio Weight
|
Volatility
|
Correlation with the Market Portfolio
|
|
HEC Corp
|
0.27
|
11%
|
0.33
|
|
Green Widget
|
0.33
|
29%
|
0.71
|
|
Alive And Well
|
0.40
|
11%
|
0.53
|
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