Question

h 08: Assignment - Risk and Rates of Return Emma holds a $5,000 portfolio that consists of four stocks. Her investment in stock's beta, is listed in the following table: Stand Stock / Perpetualcold Refrigeration Co. (PRC) Tobotics Inc. (TL) Three Waters Co. (TWC) Makissi Corp. (MC) Investment $1,750 $1,000 $750 $1,500 Beta 0.90 1.90 1.20 0.40 Suppose all stocks in Emma's portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio? Makissi Corp. Three Waters Co Tobotics Inc. Perpetualcold Refrigeration Co. Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk? Three Waters Co. Tobotics Inc. Perpetualcold Refrigeration Co. Makissi Corp.

Answer 1

C24 x fx =B24/$B$29 Beta 0.90 1.90 1.20 0.40 Weighted beta 0.315 0.380 0.180 0.1201 Weights in 23 Stock Market value portfolio 24 PRC 1,750 0.35 25 TI 1,000 0.20 26 TWC $ 750 0.15 27 MC $ 1,500 0.30 28 29 Total $ 5,000 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 37 Requried rate of return 0.995 9.25% 38 =4%+0.955*5.5% 40 Least amount of market risk Makissi Corp. (MC) | 41 Least amount of stand-alone risk Tobotics Inc. (TI)

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