The return on the market is 15.0 percent and there are no unsystematic surprises

Question

  

  

  

The return on the market is 15.0 percent and there are no unsystematic surprises in the returns. What is the return on each stock? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

  

  

Assume a portfolio has weights of 25 percent Stock A, 40 percent Stock B, and 35 percent Stock C. The return on the market is 15.0 percent and there are no unsystematic surprises in the returns. What is the return on the portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

  

The following three stocks are available in the market:

Explanation / Answer

Where Market model is

expected return = alpha + beta*market return

E(R0 Beta Alpha New return for market return of 15 %(A) Portfolio weight(B) (A)*(B) Stock A 10.6 1.28 -7.576 11.624 0.25 2.906 Stock B 13.8 1.08 -1.536 14.664 0.4 5.8656 Stock C 16.3 1.48 -4.716 17.484 0.35 6.1194 Market 14.2 Portfolio return = Sum = 14.891

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