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3. Jerry\'s portfolio is invested equally in 5 stocks (Each stock has a weight o

ID: 2697785 • Letter: 3

Question

3. Jerry's portfolio is invested equally in 5 stocks (Each stock has a weight of .20) and has a required return of 9.4%. The risk free rate is 5% and the market risk premium is 4 %. What is the portfolios beta? Assume that jerry's portfolio is on the SML
4. The last stock added to this portfolio was Lauren Clothin, which has a beta of 0.30. What was the portfolios beta before Laurens stock was added?

5. Karens portfolio, which has a beta of 1.10 consists of three mutual funds: an international fund, a utility fund and a technology fund. The international fund has a beta of 1.5 and makes up 20% of the portfolio. The utility fund has a beta of 0.5 and the technology fund has a beta of 1.3. If the portfolios beta equal 1.10, how much of Karens portfolio is invested in the technology fund? 3. Jerry's portfolio is invested equally in 5 stocks (Each stock has a weight of .20) and has a required return of 9.4%. The risk free rate is 5% and the market risk premium is 4 %. What is the portfolios beta? Assume that jerry's portfolio is on the SML
4. The last stock added to this portfolio was Lauren Clothin, which has a beta of 0.30. What was the portfolios beta before Laurens stock was added?

5. Karens portfolio, which has a beta of 1.10 consists of three mutual funds: an international fund, a utility fund and a technology fund. The international fund has a beta of 1.5 and makes up 20% of the portfolio. The utility fund has a beta of 0.5 and the technology fund has a beta of 1.3. If the portfolios beta equal 1.10, how much of Karens portfolio is invested in the technology fund?

Explanation / Answer

Hi,


Please find the answer as follows:


Part A:


9.4 = 5 + B*(4)


Portfolio Beta = (9.4 - 5)/4 = 1.1



Part B:


Portfolio's Beta before Addition = X


1.1 = .80X + .20*.30


X = (1.1 - .06)/.80 = 1.3


Portfolio's Beta before Addition would be 1.3.


Thanks.



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