Question
In: Finance
Ariel holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as...
Ariel holds a $5,000 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 |
Investment |
Beta |
Standard Deviation |
|---|---|---|---|
| Andalusian Limited (AL) | $1,750 | 0.90 | 18.00% |
| Tobotics Inc. (TI) | $1,000 | 1.30 | 11.00% |
| Water and Power Co. (WPC) | $750 | 1.10 | 18.00% |
| Flitcom Corp. (FC) | $1,500 | 0.60 | 19.50% |
Suppose all stocks in Ariel’s portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?
Water and Power Co.
Flitcom Corp.
Tobotics Inc.
Andalusian Limited
Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk?
Flitcom Corp.
Andalusian Limited
Water and Power Co.
Tobotics Inc.
If the risk-free rate is 7% and the market risk premium is 8.5%, what is Ariel’s portfolio’s beta and required return? Fill in the following table:
|
Beta |
Required Return |
|
|---|---|---|
| Ariel’s portfolio |
Solutions
Expert Solution
Market risk is measured in terms of beta. Stock which has least beta has least market risk.
Answer: Flitcom Corp. (FC)
----------------------------------------------------------------------------
Standard alone risk is measured with standard alone risk. Least standard deviation will have stand alone risk.
Answer: Tobotics Inc. (TI)
-----------------------------------------------------------
Calculate the beta and required return as follows:
Formulas:
jeff jeffy answered 3 weeks agoRelated Solutions
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