Question

​(Security market​ line)  You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found​ below:

Asset	Beta
A	2.40
B	0.95
C	0.55
D	−1.40

a.  What is the portfolio beta for your proposed investment​ portfolio?

b.  How would a 25 percent increase in the expected return on the market impact the expected return of your​ portfolio?

c.  How would a 25 percent decrease in the expected return on the market impact the expected return on each​ asset?

d.  If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two​ stocks, which stock would you decrease and which would you​ increase? ​ Why?

a.  The portfolio beta for your proposed investment portfolio is

nothing.

​(Round to three decimal​ places.)b.  A​ 25% increase in the expected return on the market will cause the expected return of your portfolio to

▼

increase

decrease

by

nothing​%.

​(Select from the​ drop-down menu and round the answer to two decimal​ places.)

c.  A​ 25% decrease in the expected return on the market will have the following impact on the expected return on each​ asset:

Asset A would

▼

by

nothing​%.

​(Select from the​ drop-down menu and round the answer to two decimal​ places.)Asset B would

▼

increase

decrease

by

nothing​%.

​(Select from the​ drop-down menu and round the answer to two decimal​ places.)Asset C would

▼

decrease

increase

by

nothing​%.

​(Select from the​ drop-down menu and round the answer to two decimal​ places.)Asset D would

▼

increase

decrease

by

nothing​%.

​(Select from the​ drop-down menu and round the answer to two decimal​ places.)

d.  If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two​ stocks, which stock would you decrease and which would you​ increase? ​ Why?  ​(Select the best choice​ below.)

A.

You should increase asset A and decrease asset D because asset​ D's beta is negative and asset A has the highest beta.

B.

You should increase asset D and decrease asset A because asset​ D's beta is negative and asset A has the highest beta.

C.

You should increase asset B and decrease asset C because asset​ B' beta is close to 1 and asset​ C's beta is the closest to zero.

D.

You should decrease asset D and increase asset A because asset​ D's beta is negative and asset A has the highest beta.

Click to select your answer(s).

Answer 1

DROP DOWN OPTIONS MISSING

IN PART C : DECREASE IMPLIES NEGATIVE RETURN, SO I HAVE PUT NEGATIVE SIGN FOR ASSET A,B AND C