Question

Portfolio return and beta Personal Finance Problem Jamie Peters invested $122,000 to set up the following portfolio one ye X Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) a. Calculate the portfolio bela on the basis of the original cost figures. b. Calculate the percentage return of each asset in the portfolio for the year. c. Calculate the percentage retum of the portfolio on the basis of original cost, using income and gains during the year. d. At the time Jamie made his investments, investors were estimating that the market return for the coming year would be 9%. each stock on the basis of its beta and the expectations of market and risk-free returns e. On the basis of the actual results, each stock in the portfolio performed differently relative to those CAPM-generated expecta a. The portfolio beta on the basis of the original cost figures is . (Round to two decimal places.) b. The percentage return for asset for the year is %. (Round to two decimal places.) Asset A B C D Cost $30,000 $40.000 $36,000 $16.000 Beta at purchase 0.84 0.96 1.48 1.38 Yearly income $1,100 $1,200 $0 $325 Value today $30,000 $41,000 $42,500 $16,500 The percentage return for asset B for the year is %. (Round to two decimal places.) The percentage return for asset for the year is %. (Round to two decimal places.) Print Done The percentage return for asset D for the year is %. (Round to two decimal places.) c. The percentage retum of the portfolio on the basis of original cost, using income and gains during the year is %. (Round to two decimal places.) d. At the time Jamie made his investments, investors were estimating that the market retum for the coming year would be 9% and the estimate of the risk-free rate of return averaged 4% for the coming year. The expected rate of return for asset Ais%. (Round to two decimal places.) The expected rate of return for asset Bis%. (Round to two decimal places.) The expected rate of return for asset C is %. (Round to two decimal places.) The expected rate of return for asset Dis 7%. (Round to two decimal places.) Click to select your answer(s). ? ►

Answer 1

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C w ENG 06:54 30-07-2020 99+ 30 Х ZL159 . ZH ZI ZU ZK ZL ZM ZN ZO ZP zQ ZR ZS ZT ZU ZV 159 160 WEIGHTED 161 162 ASSETS COST WEIGHT BETA BETA 163 P Q p*a 164 A 30000 0.84 0.24590 0.32787 0.21 0.31 165 B 40000 0.96 166 C 36000 0.29508 1.48 0.44 D 16000 1.38 0.18 167 168 0.13115 1.00000 122000 ANS : a PORTFOLIO BETA = 1.14 [ROUNDED TO 2 DECIMALS] 169 170 171 ANS : b YEARLY 172 ASSETS COST INCOME 173 PO D1 VALUE RETURN TODAY ON ASSET P1 (P1+D1-PO)/PO 30000 3.67% [ROUNDED TO 2 DECIMALS] 41000 5.50% 174 A 30000 1100 175 B 40000 1200 176 C 36000 0 42500 18.06% D 16000 325 16500 5.16% 122000 2625 130000 177 178 179 180 ANS: 0 PORTFOLIO RETURN = (130000 + 2625 - 122000)/122000 = 8.71% [ROUNDED TO 2 DECIMALS] 181 182 KE CAPM UTILITY, SHARPE, beta coNvexity DGM | beta VAR port future INDEX WACC HEDGE INTL CAP BUD Sheet11 SANDI ... +

C w ENG 06:55 30-07-2020 99+ 30 Х ZN184 . ZH ZI ZK ZL ZM ZN ZO ZP zQ ZR ZS ZT ZU ZVA ZJ Rf = 183 4% 9% Rm = 184 185 186 ANS :d ASSETS BETA EXPECTED RATE OF RETURN 187 A 188 189 190 B Rf + beta(Rm-Rf) 0.84 8.20% [4% +0.84(9%-4%)] 0.96 8.80% [4% + 0.96(9%-4%)] 1.48 11.40% [4% + 1.48(9%-4%)] 1.38 10.90% [4% + 1.38(9%-4%)] с 191 D 192 193 ANS: e ASSETS ACTUAL EXPECTED RETURN RETURN 194 195 A B 196 197 3.67% 5.50% 18.06% 8.20% ACTUAL RETURN < EXPECTED RETURN 8.80% ACTUAL RETURN < EXPECTED RETURN 11.40% ACTUAL RETURN > EXPECTED RETURN 10.90% ACTUAL RETURN < EXPECTED RETURN с 198 D 5.16% 199 ONLY C HAS ACTUAL RETURN HIGHER THAN CAPM RETURN 200 201 202 203 204 THE REASONS CAN BE : 1 BETA IS NOT CORRECTLY ESTIMATED THAT IS, BETA AS A SINGLE MEASURE MAY NOT TAKE CARE OF ALL SYSTEMATIC FACTORS WHICH CAUSE EXPECTED RETURN 2 THE UNDERPERFORMANCE OF OTHER STOCKS MAY BE DUE TO PRESENCE OF SOME UNSYSTEMATIC FACTORS 3 FIRM'S CHARACTERISTICS MAY HAVE CHANGED SO BETA MAY NOT BE TRULY SHOWING CORRECT VALUE UTILITY, SHARPE, beta coNvexity DGM | beta VAR port future INDEX WACC HEDGE INTL CAP BUD Sheet11 SANDI ... + 205 KE CAPM