Question

Attempts: 0 Keep the Highest: 0/4 5. Portfolio risk and return Aa Aa E Cheyenne 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: Investment Beta 0.90 Stock Omni Consumer Products Co. (OCP) Kulatsu Motors Co. (KMC) Water and Power Co. (WPC) Makissi Corp. (MC) Standard Deviation 12.00% 11.00% 18.00% $3,500 $2,000 $1,500 $3,000 1.50 1.10 0.40 22.50% Suppose all stocks in Cheyenne's portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio? Okulatsu Motors Co. Omni Consumer Products Co. O Makissi Corp. O Water and Power Co. Suppose all stocks in the portfolio were equally weighted Which of these stocks would have the least amount of standalone risk? O Makissi Corp Okulatsu Motors Co. O Water and Power Co. O Omni Consumer Products Co. If the risk-free rate is 4% and the market risk premium is 6%, what is Cheyenne's portfolio's beta and required return? Fill in the following table: Beta Required Return Cheyenne's portfolio 0.603 0.900 1.350 0.765

Answer 1

rate positively..

Ans 1
	correct answer is option : Makissi Corp.
	Makissi corp has lowest Beta and therefore will have low risk
Ans 2	correct answer is option : Kalutsu Motor co.
	Kalutsu Motor co. (KMC) has lowest standard deviation and will have lowest standalone risk
Ans 3
	Stock	value	value weight	Beta	Beta*Value weight
	OCP	3500	35%	0.9	0.315
	KMC	2000	20%	1.5	0.3
	WPC	1500	15%	1.1	0.165
	MC	3000	30%	0.4	0.12
		10000			0.9
	therefore portfolio Beta =			0.90
	Computation of portfolio required return using CAPM = Rf+Market risk premium * beta
					=4%+6%*0.9
					9.40%
	required return =		9.40%