Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Use the following information to answer the next two questions: Vivian has \$164,000 invested in a stock that has a beta of 1
Use the following information to answer the next two questions: Vivian has \$164,000 invested in a stock that has a beta of 1.3 and $366,000 invested in a stock with a beta of 0.9. The market risk premium is 6 percent, and the risk-free rate of return is 2 percent. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two decimal places. Use the capital asset pricing model to find the expected return on the portfolio.
Expert Solution
Beta = weight of stock A* beta of stock A + weight of stock B * Beta of stock B
= 164000/(164000+366000) * 1.3 + 366000/ (164000+366000) * 0.9
= 0.40226 + 0.621509
= 1.02377 or 1.02
As per CAPM Model ,
Required return = Risk free rate of interest + Expected Market premium *Beta
= 2% + (6%-2%)* 1.02
= 0.0608 or 6.08%
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
