A stock has a beta of 0.56, the expected return on the market is 0.06, and...

A stock has a beta of 0.56, the expected return on the market is 0.06, and the risk-free rate is 0.04. What must the expected return on this stock be? Enter the answer with 4 decimals (e.g. 0.1234).

You own a portfolio that has $2,367 invested in Stock A and $5,423 invested in Stock B. If the expected returns on these stocks are -0.06 and -0.12, respectively, what is the expected return on the portfolio?

Enter the answer with 4 decimals (e.g. 0.1234).

Expert Solution

1) Expected return = Risk-free rate + Beta(Market return - Risk-free rate) = 0.04 + 0.56(0.06 - 0.04) = 0.0512

2) Expected return on portfolio = (Weight of stock A * Expected return on stock A) + (Weight of stock B * Expected return on stock B)

Expected return on portfolio = [($2,367/$7,790) * (-0.06)] + [($5,423/$7,790) * (-0.12)]

Expected return on portfolio = -0.1018

jeff jeffy answered 2 years ago

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