Question

Suppose you have a portfolio consisting of the following: Stock Amount Invested Beta Syrah Co. $350,000 0.55 Cab Co $220,000 1.27 Zin Co. $810,000 2 Assume the expected return on the market is 10% a. What is the portfolio beta? (round to 2 decimals) b. If the risk-free rate is 3.5% and the market risk premium is 6.5%, what is the expected return on the portfolio? % c. Suppose after management fees and other expenses the actual return on the portfolio is 11.4% Evaluate management's performance O A. Management's performance was not good because it was less than expected given the risk Management's performance was good because it beat the market.

Answer 1

(W cain of Postfolio Bela using weighted aug. method follows. tored investment $ 13,80,000 OR 13.80 & inlaes Betap 3.50 2.20 Bolo -55X + 1-27 X - 2 X- 13.80 13.20 13.80 = 1.52 (6) Portfolio rehurn cesing CAPm formul Rp = Rft Rm-Rf) peme RP 3.5-4. + (6.51) 1.52 = 13-3811 (C). Acheal rehurn is less than Expeted return on portfolio And Actuel return is higher than mkt return Aus a are B' mgt Performance was gewel because it beat the mkt.