Group 5 A2 T5 10

# Group 5 A2 T5 10 - Group Assignment Week 3 MBA-6631 Group...

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Group Assignment Week 3 MBA-6631, Group participants: Jimmie Rodgers, Cynthia Strickland, Robert Ryals Chapter 6 Risk,  Returns and the  Capital Asset  Pricing Model: #1 Portfolio Beta \$35,000 invested in a stock, which has a beta of 0.8 and \$40,000 invested in a stock with a beta of 1.4.  If these are the only  two investments in portfolio, what is portfolio Beta?  Total Portfolio  Value = 75000 Determine Weight: Each Stock  Invested / Total  Portfolio Weight: Beta x Weight 0.466666667 0.373333333 0.533333333 0.746666667 Portfolio Beta: 1.12 #3 Expected and  Required Rates  of Return required rate of return on a stock that has a beta of 1.2? Risk Premium (RPm) = Required Rate of Return (rm) - Risk-free Rate of return (rrf)  rrf = 5%, RPm =  6%, Rm=? 6% = rm - 5% ri = 11% Expected Rate of  Return SML Equation:  Risk-free Rate +  (Market Risk  Premium) (Stock  Beta) ri = rrf + (RPm)b

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ri = 5% + (6%)1.2  = 12.2% #5 Expected  Returns Discrete  Distribution The market and  Stock J have the  following  probability  distributions: Probability: rm rj 0.3 15% 20% 0.4 9% 5% 0.3 18% 12% a. Calculate the  expected rates of  return for the  market and Stock  J Expected return  for Market:  Probability x rm Expected return for Stock J: Probability x rj
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## This note was uploaded on 10/19/2010 for the course ACCOUNTING 6660 taught by Professor Mcgrath during the Fall '10 term at Troy.

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Group 5 A2 T5 10 - Group Assignment Week 3 MBA-6631 Group...

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