Chapter 10 question 11 You hold the positions in the table below. What is the be

Question

Chapter 10 question 11

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 16.60 percent and the risk-free rate is 4.60 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 $ 13.00 410 3.88   FedEx Corp 171.00 132 1.35   Microsoft 28.00 180 1.29   Sara Lee Corp 32.80 190 1.30

Explanation / Answer

For the portfolio, determine the total value of the portfolio and the weights of each stock in the portfolio :

Total value = $13.00×410+ $171.00×132 + $28.00×180 + $32.80×190= $39174

Advanced Micro Devices weight = $13.00×410 / $39174 = 13.61%

FedEx Corp weight = $171.00×132 / $39174 = 57.62%

Microsoft weight = $28.00×180/ $39174 = 12.87%

Sara Lee Corp weight = $32.80×190 / $39174 = 15.91%

Now compute the portfolio beta = 0.136×3.88 + 0.567×1.35 + 0.128×1.29 + 0.159×1.30 = 1.67

So the portfolio’s required return = 4.60%+1.67×(16.60%4.60%) = 24.64%

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