The risk-free rate is 2.34% and the expected return on the market is 7.42%. What

Question

The risk-free rate is 2.34% and the expected return on the market is 7.42%. What is the market risk premium? Round your answer to 2 decimal places.

The beta for IBM is 0.91. The risk-free rate is 2.6% and the market risk premium is 6.6%. What is the expected return on IBM's stock? Round your answer to four decimal places.

The beta for Ford's stock is 1.09. The beta for McDonald's stock is 1.57. What is the beta of a portfolio with 68% invested in Ford and the remainder invested in McDonald's? Round your answer to two decimal places.

Explanation / Answer

1)MRP = E(r) - RFR = 7.42 -2.34 = 5.08%

2)E(r) = RFR + Beta*MRP = 0.026 + 0.91*0.066 = 0.08606 = 8.6%

3)Beta(P) = B(F)*F + B(M)*M

F = Fraction invested in Ford = 0.68 ,M =Fraction invested in McDonald = 1-0.68 = 0.32

Beta(P) = 1.09*0.68 + 1.57*0.32 = 1.24

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