Portfolio P has 30 percent invested in Stock X and 70 percent in Stock Y. The...
Portfolio P has 30 percent invested in Stock X and 70 percent in Stock Y. The risk-free rate of interest is 6 percent and the market risk premium is 5 percent. Portfolio P has a required return of 12 percent and Stock X has a beta of 0.75. What is the beta of Stock Y?
Homework Answers
Calculation of beta of stock Y:
Expected return= Risk free rate+portfolio beta*market risk premium
12= 6+Portfolio beta*5
6= Portfolio beta*5
Portfolio beta= 1.2
Beta of Stock X*weight of Stock X+ beta of stock Y*weight of Stock Y= Portfolio beta
(0.75*0.3)+ (beta of Y*0.7)= 1.2
Beta of Y*0.7= 0.975
Beta of Y= 0.975/0.7= 1.39
Beta of stock Y= 1.39
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