Question

7. Portfolio risk and return Aa Aa Ariel holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: Stock Perpetualcold Refrigeration Co. (PRC) Zaxatti Enterprises (ZE) Three Waters Co. (TWC) Makissi Corp. (MC) Investment $1,750 $1,000 $750 $1,500 Beta 0.80 1.70 1.15 0.30 Standard Deviation 9.00% 11.50% 16.00% 25.50% Suppose all stocks in Ariel's portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio? Suppose all stocks in the portfolio were equally weighted Which of these stocks would have the least amount of standalone risk? O Perpetualcold Refrigeration Co O Zaxatti Enterprises Q Zaxatti Enterprises O Three Waters Co O Perpetualcold Refrigeration Co O Makissi Corp. Three Waters Co O Makissi Corp If the risk-free rate is 4% and the market risk premium is 6%, what is Ariel's portfolio's beta and required return? Fill in the following table: Beta Required Return Ariel's portfolio

Answer 1

Portfolio Beta: (0.88)

Working

Stock	Investment($)	Investment Proportion	Beta	Beta*IP
PRC	1750	0.35	0.8	0.28
ZE	1000	0.20	1.7	0.34
TWC	750	0.15	1.15	0.17
MC	1500	0.30	0.3	0.09
	5000			0.88

Portfolio Return:

Return = Riskfree rate + Beta * Market risk premium

= 4%+.88*6%

= 9.28%