Question

Risk and Return

Use the following data to explore the risk-return relation and the concept of beta for Apple stock, Kroger stock, and the S&P 500 market index:

Year	Apple Stock Price	Kroger Stock Price	S&P 500 Market Index
2020	$252.92	$30.71	3,234.85
2019	$156.23	$27.66	2,531.94
2018	$169.23	$27.32	2,753.15
2017	$125.17	$29.52	2,276.98
2016	$108.41	$31.80	2,043.94
2015	$112.98	$33.37	2,058.20

Part 2: Required Return

Market risk premium: RPM =	5.60%
Risk-free rate: rRF =	0.70%

1. Calculate the expected return on the market according to: Expected Return on Market = Risk-Free Rate + Market Risk Premium. Also calculate the required return for Apple and Kroger according to: Required Return = Risk-Free Rate + (Beta)(Market Risk Premium). (10 Points)

Expected return on the market: rm =
Apple Required Return =
Kroger Required Return =

2. If you formed a portfolio that consisted of 60% Apple stock and 40% Kroger stock, calculate the beta. (10 Points)

	Beta	Portfolio Weight
Apple
Kroger
Portfolio Beta

3. Calculate the portfolio beta of the four-stock portfolio and the required return on the portfolio. (10 Points)

	Beta	Portfolio Weight
Apple		25%
Kroger		15%
Stock D	1.52	40%
Stock C	1.42	20%
Portfolio Beta  =
Risk-free rate	Market Risk Premium	Portfolio Beta	Required Return on Portfolio

Answer 1

The formulas and the inputs used is as follows:

The result is as follows: