1.) You have a portfolio consisting of Intel, GE and Con Edison. You put 20% in...

1.) You have a portfolio consisting of Intel, GE and Con Edison. You put 20% in Intel, 65% in GE and 15% in Con Edison. Intel, GE and Con Edison have betas of 0.43, 1.48 and 1.75 respectively. What is your portfolio beta?

2.) According to the CAPM, what is the expected return on a security given a market risk premium of 12%, a stock beta of 1.51, and a risk free interest rate of 1%? Put the answers in decimal place.

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Expert Solution

Answer to Question 1:

Portfolio Beta = Weight of Intel * Beta of Intel + Weight of GE * Beta of GE + Weight of Con Edison * Beta of Con Edison
Portfolio Beta = 0.20 * 0.43 + 0.65 * 1.48 + 0.15 * 1.75
Portfolio Beta = 1.31

Answer to Question 2:

Expected Return = Risk-free Rate + Beta * Market Risk Premium
Expected Return = 1.00% + 1.51 * 12.00%
Expected Return = 19.12%

jeff jeffy answered 2 years ago

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