Take Test: HW 7-2181 BUSFIN 1030 SEC My Pitt Home w Question Completion Status:

Question

Take Test: HW 7-2181 BUSFIN 1030 SEC My Pitt Home w Question Completion Status: 10 po QUESTION 5 stocks A and B (meaning half of your money is in A and the other half in B) has an expected return of 11%. If stock A has beta. 1.4, what must be the expected return of stock B? The risk-free rate is 5%. The expected return on the market is 10%. An equal-weighted portfolio of A 5% B. 12% OC-896 1096 10 point QUESTION 6 You expect the market portfolio to return 14%. US government T-bills yeld 496. You invest $4,000 in Stock A and $16,000 in Stock B. Stock A has beta-0.6 and Stock B has beta 1.9. What is the expected return on your portfolio? 0 A 20.40% B. 19.75% c. 26.06% D. 18.67% Click Save and Submit to save and submit. Click Save AllAnswers to save all answers Save All Answers Ai

Explanation / Answer

beta of portfolio = (11 - 5)/(10 - 5) = 1.2

1.2*2 = 1.4 + beta of B

beta of B = 1; this is the same as the market

so expected return of B = 10%

b.proportion in A = 4000/20000 = 0.2

beta = 0.2*0.6 + 0.8*1.9 = 1.64

expected return on portfolio = 4% + 1.64*10% = 20.40%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.