1. 1. (2 points) Stock A has a beta of 1.78 and an expected return of 15%. Stock
ID: 2622015 • Letter: 1
Question
1. 1. (2 points) Stock A has a beta of 1.78 and an expected return of 15%. Stock B has a beta of 0.66 and an expected return of 9.8%. You want to combine these two stocks into a portfolio with the same risk as the market. What percentage of your portfolio will be invested in each stock? Hint 1: The beta of the market is 1. Hint 2: The weights in a portfolio must add up to 1.
2. 2. 3 points) You have a portfolio made up of 3 stocks: Stock E, Stock A, and Stock R. You have the following information regarding next year
Explanation / Answer
1. 1. (2 points) Stock A has a beta of 1.78 and an expected return of 15%. Stock B has a beta of 0.66 and an expected return of 9.8%. You want to combine these two stocks into a portfolio with the same risk as the market. What percentage of your portfolio will be invested in each stock? Hint 1: The beta of the market is 1. Hint 2: The weights in a portfolio must add up to 1.
Sol: beta of market = 1
1 = wA*1.78 + (1-wA)*0.66
wA = 30.36%
wB = 1-30.36%=69.64%
2. 2. 3 points) You have a portfolio made up of 3 stocks: Stock E, Stock A, and Stock R. You have the following information regarding next year
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