Jamie Peters invested ​$126,000 to set up the followingportfolio one year​ ago:
Asset | Cost | Beta at purchase | Yearly income | Value today |
A | ​$40,000 | 0.79 | ​$1,400 | | ​$40,000 |
B | ​$37,000 | 0.97 | ​$1,600 | | ​$38,000 |
C | ​$35,000 | 1.55 | ​$0 | | ​$41,500 |
D | ​$14,000 | 1.27 | ​$300 | | ​$14,500 |
a. Calculate the portfolio beta on the basis of the originalcost figures.
b. Calculate the percentage return of each asset in theportfolio for the year.
c. Calculate the percentage return of the portfolio on the basisof original​ cost, using income and gains during the year.
d. At the time Jamie made his​ investments, investors wereestimating that the market return for the coming year would be 11%.The estimate of the​ risk-free rate of return averaged 3% for thecoming year. Calculate an expected rate of return for each stock onthe basis of its beta and the expectations of market and​ risk-freereturns.
e. On the basis of the actual​ results, explain how each stockin the portfolio performed differently relative to those​CAPM-generated expectations of performance. What factors couldexplain these​ differences?
