Question

(Portono pera and security market ine) Tou own a pontouo consisung or the Toulowing SOCKS The hsk-ree rate is 3 percent. Also, the expected return on the market portfolio is 13 percent. a. Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stocks' expected returns, where the weights are the percentage invested in each stock.) b. Calculate the portfolio beta. C. Given the foregoing information, plot the security market line. Plot the stocks from your portfolio on your graph d. From your plot in part (c), which stocks appear to be your winners and which ones appear to be losers? e. Why should you consider your conclusion in part (d) to be less than certain? a. What is the expected return of your portfolio? 20 % (Round to two decimal places.) b. What is the beta of your portfolio? (Round to two decimal places) Enter your answer in the answer box and then click Check Answer parts remaining

Answer 1

Expected return on the portfolio = Weighted average of the expected returns on each of the stock

= 0.3* 18% + 0.1 * 15% + 0.05 * 21% + 0.15 * 11% + 0.4 * 26% = 20%

Beta of the portfolio = Weighted average Beta = 0.3 * 1.1 + 0.1 * 0.8 + 0.05*1.20 + 0.15 * 0.65 + 0.4* 1.6 = 1.21