You hold the positions in the table below. What is the beta of your portfolio? (

Question

You hold the positions in the table below.

  

What is the beta of your portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

  

If you expect the market to earn 19.40 percent and the risk-free rate is 8.40 percent, what is the required return of the portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Assumed
Price Shares Assumed
Beta   Advanced Micro Devices $ 23.00 361 4.58   FedEx Corp 122.00 110 1.17   Microsoft 29.00 129 1.15   Sara Lee Corp 27.00 221 0.74

Explanation / Answer

First determine the total value (Portfolio) and the weights of each stock in the portfolio as follow....

Total value = $23 × 361 + $122.00 × 110 + $29 × 129 + $27 × 221

Total value = $31,431

Advanced Micro Devices weight = $23 × 361 / $31,431

Advanced Micro Devices weight = 26.42%

FedEx Corp weight = $122.00 × 110 / $31,431

FedEx Corp weight = 42.70%

Microsoft weight = $29 × 129 / $31,431

Microsoft weight = 11.90%

Sara Lee Corp weight = $27 × 221 / $31,431

Sara Lee Corp weight = 18.99%

Now compute the portfolio beta as follows...

Portfolio beta = 0.2642 × 4.58 + 0.4270 × 1.17 + 0.1190 × 1.15 + 0.1899 × 0.74

Portfolio beta = 1.98

So the portfolio’s required return as follows....

Portfolio’s required return = 8.40% +1.98 × (19.40% 8.40%)

Portfolio’s required return = 30.18%

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