Question

6. Portfolio risk and return Aa Aa E Elle holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: beta Stock Omni Consumer Products Co. (OCP) Zaxatti Enterprises (ZE) Three Waters Co. (TWC) Makissi Corp. (MC) Investment $3,500 $2,000 $1,500 $3,000 0.90 1.30 Standard Deviation 9.00% 11.50% 18.00% 19.50% 1.15 0.30 Suppose all stocks in Elle'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? Makissi Corp. 0 Zaxatti Enterprises Three Waters Co. 0 Omni Consumer Products Co. Omni Consumer Products Co. O Makissi Corp. Three Waters Co. Zaxatti Enterprises If the risk-free rate is 7% and the market risk premium is 9%, what is Elle's portfolio's beta and required return? Fill in the following table: Beta Required Return Elle's portfolio

Answer 1

C24 D E Beta 0.90 1.30 1.15 0.30 Weighted beta 0.315 0.260 0.173 0.090 - X fx =B24/$B$29 B C Weights in 23 Stock Market value portfolio 24 OCP 3,500 0.35 25 ZE 2,000 0.20 26 TWC $ 1,500 0.15 27 MC $ 3,000 0.30 28 29 Total 10,000 1.00 30 Beta of the portfolio, ß 32 33 New Required return on portfolio =Rf+BXRp 34 Rf is risk free return 35 Rp is risk premium 36 0.838 37 Requried rate of return 14.54% =7%+0.838*9% 40 Least amount of market risk Makissi Corp. (MC) 41 Least amount of stand-alone risk Omni Consumer Products Co.

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