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BETAS for company

The following table shows betas for several companies. Calculate each stock’s expected rate of return using CAPM. Assume the risk free rate of interest is 8 percent. Use a 5 Percent risk premium for the market portfolio.                                                   [4 marks]

 

                                    Company                                 Beta

PSO                                          2.4

Shell                                        1.8

Hascol                                      0.50

                                    Total                                        0.75

 

a)      If the expected rate of return on the market portfolio is 9 percent and T- bills yield is 5 percent, what must be the beta of a stock that investors expect to return 12 percent?

 

b)      You have equal investment in all four stocks given in this question. What would be your portfolio beta?

 

c)      Explain portfolio beta in a sentence of your own?

 


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