Tutorial 4 Problems

Tutorial 4 Problems - Tutorial Problems-IV Question-1 You...

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1 of 2 Tutorial Problems-IV Question-1 You own a portfolio consisting of the following shares. Security Weights Beta Expected Return 1 20% 1.00 16% 2 30% 0.85 14% 3 15% 1.20 20% 4 25% 0.60 12% 5 10% 1.60 24% If the risk-free rate is 7 percent and expected return on the market portfolio is 15.5 percent: a) Calculate the expected return and the beta for your portfolio. b) Evaluate which of the stocks are relatively overpriced and which ones are relatively under-priced. Question-2 You hold three stocks in your portfolio, Stocks A, B and C. The portfolio beta is 1.50. Stock A contributes 20 percent of the dollar value of your holdings and has a beta of 1.25. If you sell all of your holdings in Stock A, and replace it with an equal investment in Stock D with a beta of 1.00, what is the beta of the new portfolio (Stocks B, C and D)? Question-3 Dot.com has a beta of 1.7 and an expected return of 16.7 percent. Assume that the CAPM is true and that the risk-free rate is 7.6 percent. a) What is the market risk premium?
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This note was uploaded on 12/10/2011 for the course MGCR 341 taught by Professor Trainor during the Winter '08 term at McGill.

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Tutorial 4 Problems - Tutorial Problems-IV Question-1 You...

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