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Consider a portfolio consisting of the following three stocks: Portfolio Weight Volatility Correlation with Market Portfolio HEC Corp 0.26 13% 0.35 Green Midget 0.29 28% 0.52 Alive And...

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Finance

  1. Consider a portfolio consisting of the following threestocks:

Portfolio Weight

Volatility

Correlation with Market Portfolio

HEC Corp

0.26

13%

0.35

Green Midget

0.29

28%

0.52

Alive And Well

0.45

11%

0.54

The volatility of the market portfolio is 10% and it has anexpected return of 8%. The risk-free

rate is 3%.

  1. Compute the beta and expected return of each stock.
  2. Using your answer from part (a), calculate the expected returnof the portfolio.
  3. What is the beta of the portfolio?
  4. Using your answer from part (c), calculate the expected returnof the portfolio and verify that it matches your answer to part(b).

Answer & Explanation Solved by verified expert
3.8 Ratings (545 Votes)
Formula Corsdsdm rf rmrfb Stock Portfolio weight w Volatility sd Correlation with market porfolio cor Beta coefficient b Expected return Er HEC Corp 26 13 035 04550 528 Green Midget 29 28 052 14560 1028    See Answer
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Transcribed Image Text

Consider a portfolio consisting of the following threestocks:Portfolio WeightVolatilityCorrelation with Market PortfolioHEC Corp0.2613%0.35Green Midget0.2928%0.52Alive And Well0.4511%0.54The volatility of the market portfolio is 10% and it has anexpected return of 8%. The risk-freerate is 3%.Compute the beta and expected return of each stock.Using your answer from part (a), calculate the expected returnof the portfolio.What is the beta of the portfolio?Using your answer from part (c), calculate the expected returnof the portfolio and verify that it matches your answer to part(b).

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