Problem 10-28 Portfolio Beta and Required Return (LG10-3) You hold the positions

Question

Problem 10-28 Portfolio Beta and Required Return (LG10-3)

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.)

portfolio beta= ......%

If you expect the market to earn 15.50 percent and the risk-free rate is 5.50 percent, what is the required return of the portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

required return=.......%

Price Shares Beta Advanced Micro Devices $ 20.00 320 4.50 FedEx Corp 136.00 72 1.57 Microsoft 24.00 114 1.20 Sara Lee Corp 32.00 169 .60

Explanation / Answer

Total value in each stock:

Advanced Micro Devices=20*320=6400

FedEx Corp=136*72=9792

Microsoft=24*114=2736

Sara Lee Corp=32*169=5408

So, total portfolio=6400+9792+2736+5408=24336

Hence, portfolio beta=(6400*4.5+9792*1.57+2736*1.2+5408*0.6)/24336=2.083393

Required return=risk free+beta*market risk premium

market risk premium=15.5-5.5=10%

hence, required return of the portfolio=5.5+2.08*10=26.33%

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