Your investment club has only two stocks in its portfolio; $45,000 is invested i
ID: 2637644 • Letter: Y
Question
Your investment club has only two stocks in its portfolio; $45,000 is invested in a stock with a beta of 0.8, and $45,000 is invested in a stock with a beta of 1.4. What is the portfolio's beta? Round your answer to two decimal places.
AA Industries's stock has a beta of 1.7. The risk-free rate is 6%, and the expected return on the market is 10%. What is the required rate of return on AA's stock? Round your answer to two decimal places.
Assume that the risk-free rate is 3.5% and that the market risk premium is 4%.
What is the required rate of return on a stock with a beta of 0.8? Round your answer to two decimal places.
%
What is the required rate of return on a stock with a beta of 2.3? Round your answer to two decimal places.
%
What is the required return on the market? Round your answer to two decimal places.
%
Explanation / Answer
the portfolio beta is (0.8 + 1.4)/ 2= 1.1
if Beta is1.7 required rate of return from AA=
= Rf+ Beta (Rm-Rf)
=6 + 1.7 (4%)
= 12.8%
if Beta is 0.8 then return is
= 6+ (0.8X 4)
=9.2%
if Beta is 2.3 then the return is
= 6+ (2.3X 4)
= 15.2%
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