a)Determine the probability investing in this stock. b. De rate of return less t

Question

a)Determine the probability investing in this stock. b. De rate of return less than the risk termine the probability of earning a of 6 percent. 18. Three Rivers Investment Company desires to construct a portfolio with a 20 expected return. The portfolio is to consist of some combination of Secrityen Security , which have the following expected returns, standard deviatic returns, and betas: and op Expected return Standard deviation Beta Security X 15% 10% Security Y 28% 20% 0.94 1.33 Determine the expected beta of the portfolio.

Explanation / Answer

Expected return of portfolio = 20%

Suppose investment in security X is X% and investment in security Y is (1 - X%)

20% = (15% × X%) + 26% × (1 - X%)

20% = 15% × X% - 26% × X% + 26%

11% × X% = 6%

X% = 54.55%

Investment in stock X is 54.55% and investment in stock Y is 45.45%.

Now, Portfolio Beta = (0.94 × 54.55%) + (1.33 × 45.45%)

= 0.51 + 0.61

= 1.12

Beta of portfolio is 1.12.

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