Thompson6 \u2013 FI360.docx - Assignment \u2013 Week 6 \u2013 FI360 Chapter 8(pages 294 295 Questions 8-1 8-2 8-3 8-4 8-5 8-12 Thompson6 \u2013 FI360 Q8-2 An

Thompson6 u2013 FI360.docx - Assignment u2013 Week 6...

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Thompson6 – FI360 Assignment – Week 6 – FI360 Chapter 8 (pages 294 - 295): Questions 8-1, 8-2, 8-3, 8-4, 8-5, 8-12 Q8-2: An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta? Investment Beta $35,000 0.8 40,000 1.4 Total $75,000 bp = ($35,000/$75,000)(0.8) + ($40,000/$75,000)(1.4) = 1.12 Q8-3: Assume that the risk-free rate is 6% and the required return on the market is 13%. What is the required return for the overall stock market? What is the required rate of return on a stock with a beta of 1.2? Q8-4: Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the required return for the overall stock market? What is the required rate of return on a stock with a beta of 1.2? r = risk-free rate + market risk premium multiplied by stock’s beta r = 5% + 6%(1.2) r = 5% + 7.2% r = 12.2%. Q8-5: A stock has a required return of 11%, the risk-free rate is 7%, and the market risk premium is 4%.
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  • Fall '08
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  • risk-free rate, Q8-3

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