Assume you are investing 40% of your money in Stock A, and 60% in Stock B. Betas
ID: 2768644 • Letter: A
Question
Assume you are investing 40% of your money in Stock A, and 60% in Stock B. Betas for
Stock A is 1.2, and for Stock B is 0.8.
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Probability | Stock A | Stock B |
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0.53 | 13% | 22% |
0.47 | 18% | 10% |
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19. The beta for the portfolio is:
a. 0.96. b. 0.78. c. 1.10. d. 1.20.
20. The standard deviation for the portfolio is:
a. 0.000674. b. 0.025953. c. 0.000623. d. 0.059892.
Explanation / Answer
Weight Beta Weight *beta A 40% 1.2 0.48 B 60% 0.8 0.48 beta for the portfolio 0.96 Return Weight Expected return (return*weight) Total of Stock A and B Expected return Expected return on Portfolio*Probability (.18-.16)^2*.53 Probability Stock A Stock B Stock A Stock B Stock A Stock B Varaince 0.53 13% 22% 40% 60% 5% 13% 18% 0.09752 0.000316576 0.47 18% 10% 40% 60% 7% 6% 13% 0.06204 0.00035699 12% 19% 16% 0.000673566 Standared deviation SQTR of .000674 0.025953
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