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Quantitative Problem: You are holding a portfolio with the following investments and betas: Stock Dollar investment...
Quantitative Problem: You are holding a portfolio with the following investments and betas:
| Stock | Dollar investment | Beta | ||
| A | $200,000 | 1.15 | ||
| B | 100,000 | 1.60 | ||
| C | 500,000 | 0.80 | ||
| D | 200,000 | -0.30 | ||
| Total investment | $1,000,000 | |||
The market's required return is 9% and the risk-free rate is 3%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places.
Solutions
Expert Solution
Ans 7.38%
| Stock | INVESTMENT (i) | Beta (ii) | Investment* Beta (i)* (ii) |
| A | 2,00,000 | 1.15 | 2,30,000.00 |
| B | 1,00,000 | 1.60 | 1,60,000.00 |
| C | 5,00,000 | 0.80 | 4,00,000.00 |
| D | 2,00,000 | (0.30) | (60,000.00) |
| Total | 10,00,000 | 7,30,000 | |
| AVERAGE BETA = | (INVESTMENT * BETA) / TOTAL INVESMENT | ||
| 730000 / 1000000 | |||
| 0.730000000000 | |||
| Required Return = | Risk free Return + (Market Return - Risk free return)* Beta | ||
| Required Return = | 3% + (9% - 3%)*0.730 | ||
| Required Return = | 7.38% |
jeff jeffy answered 3 years agoRelated Solutions
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