Homework Answers
| 1] | Expected risk premium = Beta*Market risk premium | |
| 2] | For GOOG, 10.48 = 1.42*Market risk premium | |
| Market risk premium = 10.48/1.42 = | 7.38 | |
| 3] | For MSI, | |
| 6.46 = Beta*7.38 | ||
| Beta of MSI = 6.46/7.38 = | 0.88 | |
| 4] | Beta of portfolio = 1.42*68%+0.88*32% = | 1.25 |
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Lucas builds a portfolio by investing in two stocks only: Google (GOOG) and Motorola (MSI). According...
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Please be careful with
roundings :) Thanks!
The CFO of MediSearch plc believes that investing into a project which will develop a new drug for fighting the flu virus, promises a long-term annual return of 10%. The expected return of the market index is RM = 14.4%, the volatility of the market index is OM = 12%, and the risk-free asset earns R = 4.8%. The CFO has studied similar projects of other companies and believes that the covariance between...
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