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Consider the following stock information about Tencent and HSBC State of economy Probability of State of...

Consider the following stock information about Tencent and HSBC

State of economy Probability of State of economy Returns if state occurs
Tencent HSBC
Bad 0.3 -10% -5%
Good 0.7 15% 12%

a. What’re the expected return on each stock?
b. What’re the standard deviation on each stock?
c. The risk free rate is 1.5%. Based on the CAPM, If Tencent’s market beta is 1.5, what’s the beta of HSBC?
d. If you invested 65 percent in Tencent and 35 percent in HSBC, what is your portfolio expected return? The standard deviation?
e. Given the portfolio information in (d) and beta information in (c), what is the portfolio’s market beta?

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -


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