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Homework answers / question archive / Portfolio return and beta Personal Finance Prob
Portfolio return and beta Personal Finance Prob. Jamie Peters invested $125,000 to set up the rig portfolio one year ago:
Data Table
Asset Cost Beta at purchase Yearly Income Value today
A $33,000 0.88 $1,000 $33,000
B $40,000 0.95 $1,300 $41,000
C $36,000 1.41 $0 $42,500
D $16,000 1.36 $475 $16,500
a) Calculate the portfolio beta on the basis of the original cost figures.
b) Calculate the percentage return of each asset in the portfolio for the year.
c) Calculate the percentage retum of the portfolio on the basis of original cost, using income and gains during the year.
d) At the time Jamie made his investment, investors were estimating that the market return for the coming year would be 11%. The estimate of the risk-free rate of return averaged 4% for the coming year. Calculate an expected rate of return for each stock on the basis of its beta and the expectations of market and risk-free returns.
e) On the basis of the actual results, explain how each stock in the portfolio performed differently relative to those CAPM-generated expectations of performance. What factors could explain these differences?
a) Portfolio beta = 1.12
b) Please see the attachment:
c). Percentage return on portfolio = 8.62%
d) Please see the attachment:
e) Any underperformance could be due to any unsystematic factor which would have caused the firm to not to do as well as expected.
