Homework Answers
Beta is a measure of market risk
Lowest beta is of Mainway Toys Co., hence it contributes lowest to market risk
Stand alone risk is measured by Standard Deviation
Hence, the answer is
Omni Consumer Products Co.
Portfolio beta is equal to weighted average beta
= 0.8*2625/7500 + 1.50*1500/7500 + 1.10*1125/7500 + 0.30*2250/7500
= 0.835
Required return = Risk free rate + beta*market risk premium
= 7% + 0.835*8.5%
= 14.0975%
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Ariel holds a $7,500 stock portfolio that consists of 4
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8. Portfolio risk and return Elle holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: Standard Deviation 9.00% Stock Omni Consumer Products Co. (OCP) Zaxatti Enterprises (ZE) Three Waters Co. (TWC) Mainway Toys Co. (MTC) Investment $1,750 $1,000 $750 $1,500 Beta 0.80 1.90 1.15 0.30 11.50% 16.00% 28.50% Suppose all stocks in Elle's portfolio were equally weighted. Which of these stocks would contribute...
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5. Portfolio risk and return Aa Aa Ariel 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 Standard Deviation 9.00% 0.90 Stock Omni Consumer Products Co. (OCP) Kulatsu Motors Co. (KMC) Three Waters Co. (TWC) Flitcom Corp. (FC) Investment $3,500 $2,000 $1,500 $3,000 1.30 11.00% 1.10 18.00% 0.30 19.50% Suppose all stocks in Ariel's portfolio were equally weighted. Which of these stocks...
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Elle holds a $7,500 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: Stock Standard Deviation 9.00% Investment Beta $2,625 0.80 $1,500 1.90 $1,125 1.15 $2,250 0.30 Andalusian Limited (AL) Zaxatti Enterprises (ZE) Western Gas & Electric Co. (WGC) Mainway Toys Co. (MTC) 11.50% 16.00% 28.50% Suppose all stocks in Elle's portfolio were equally weighted. Which of these stocks would contribute the least market risk to...
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