Question

In: Finance

1) An investor is forming a portfolio by investing $58500 in Stock A, which has a...

1) An investor is forming a portfolio by investing $58500 in Stock A, which has a beta of 1.45, and $16500 in Stock B, which has a beta of 0.76. What is the investor's portfolio beta?  

2) The common stock of Jensen Shipping has an expected return of 11.25 percent. The return on the market is 9.57 percent, and the risk-free rate of return is 3.58 percent. What is the beta of this stock?

Solutions

Expert Solution

Solution :

1 ) The Investor's portfolio beta is = 1.30

Please find attached the screenshot of the excel sheet containing the detailed calculation for the above solution.

Solution :

2) As per CAPM the expected return of a stock can be calculated using the following formula:

RE = RF + [ β * ( RM - RF ) ]

Where

RE = Expected Return of a stock    ; RF = Risk free rate of return   ; β = Beta of the stock ;

RM = Return on the market

As per the information given in the question we have

RE = 11.25 %   ;   RF = 3.58 %   ;     RM = 9.57 %   ;    β = To find

Applying the above values in the formula we have

11.25 % = 3.58 % + [ β * ( 9.57 % - 3.58 % ) ]

11.25 % - 3.58 % = β * 5.99 %

7.67 % = β * 5.99 %

= 7.67 / 5.99 = 1.2805

β = 1.28 ( When rounded off to two decimal places )

Thus the Beta of the stock is = 1.28


Related Solutions

An investor is forming a portfolio by investing $50,000 in stock A which has a beta...
An investor is forming a portfolio by investing $50,000 in stock A which has a beta of 1.50, and $25,000 in stock B which has a beta of 0.90. The return on the market is equal to 6% and treasure bonds have a yield of 4% (rRF). What’s the portfolio beta? 0.60 1.30 1.40 1.80 Using the information from above, what’s the required rate of return on the investor’s portfolio? 5.2% 5.8% 6.6% 7.4%
An investor is forming a portfolio by investing $150,000 in stock A which has a beta...
An investor is forming a portfolio by investing $150,000 in stock A which has a beta of 2.40, and $150,000 in stock B which has a beta of 0.60. The market risk premium is equal to 5% and treasure bonds have a yield of 3% (rRF). What’s the portfolio beta? 1.60 1.95 1.50 1.80 Using the information in Question, calculate the required rate of return on the investor’s portfolio 8.5% 10.5% 12.75% 9.5%
An investor is forming a portfolio by investing $50,000 in stock A that has a beta...
An investor is forming a portfolio by investing $50,000 in stock A that has a beta of 0.5, and $25,000 in stock B that has a beta of 0.90. What is the beta of the combined portfolio?
An investor with a risk aversion coefficient of A=2.5 is considering forming a portfolio with a...
An investor with a risk aversion coefficient of A=2.5 is considering forming a portfolio with a risk-free and a risky asset. The risk-free rate is 4%, the risky asset has an expected return of 12% with a standard deviation of 20%. (a) Calculate a utility table with weights in 10% increments (0%, 10%, 20%, … 100%) between risk-free and risky asset. (b) Find the set of weights that maximizes the utility for such investor.
You are forming a portfolio with two stocks. The first stock has an expected return of...
You are forming a portfolio with two stocks. The first stock has an expected return of 15% and a standard deviation of 20%. The second stock has an expected return of 10% and a standard deviation of 15%. The two stocks have a correlation of 0.5. If you want to form the portfolio by investing $1000 in the first stock and $3000 in the second stock, what is the expected return and standard deviation of the portfolio? Lastly, use the...
1. an investor considers investing in shares A and B. Stock A is currently trading at...
1. an investor considers investing in shares A and B. Stock A is currently trading at the price of $1000 with price earning ratio (PER) value of 10X, meanwhile stock B is currently trading at the price of $2000 with price earning ratio value of 20X. Its estimated that EPS stock A will increase 50% than its previous EPS in the next 3 months, while EPS stock B will decrease by 50% in the next 3 months. According to that...
A young investor in the stock market is concerned that investing in the stock market is...
A young investor in the stock market is concerned that investing in the stock market is actually​ gambling, since the chance of the stock market going up on any given day is 50 ​%. She decides to track her favorite industrial company stock for 257 consecutive days and finds that on 138 days the stock was​ "up." Complete parts a through c. ​a) Find a 95 ​% confidence interval for the proportion of days the stock is​ "up." Check the...
An Investor has $200,000 invested in a 2-stock portfolio. $60,000 is invested in Stock X and...
An Investor has $200,000 invested in a 2-stock portfolio. $60,000 is invested in Stock X and the remainder is invested in Stock Y. X's beta is 1.2 and Y’s beta is 1.5. What is the portfolio's beta?
A portfolio manager has a $10 million portfolio, which consists of $1 million invested in stock...
A portfolio manager has a $10 million portfolio, which consists of $1 million invested in stock X and $2million invested in stock Y seperate stocks. Stock X has a beta of 0.9 where as stock Y has a beta of 1.3. The risk-free rate is 5% and the market risk premium is 6%. a. Calculate portfolio's beta b. Calculate stock X and stock Y required returns. c. Calculate portfolio's required return. d. Calculate portfolio's required rate of return if risk...
9) If an investor plans to add a stock to a well-diversified portfolio, the investor should...
9) If an investor plans to add a stock to a well-diversified portfolio, the investor should first consider the ________ risks of that additional stock. A) expected total B) historical total C) systematic D) idiosyncratic E) firm-specific
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT