Jason Jackson is attempting to evaluate 2 possible portfolios consisting of the same 5 assets...
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Jason Jackson is attempting to evaluate 2 possible portfolios consisting of the same 5 assets but held in different proportions. He is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: B a. Calculate the betas for portfolios A and B. b. If the risk-free rate is 2.5% and the market return is 7.2%, calculate the required return for each portfolio using the CAPM. c. Then assume you believe that each of the five assets will earn the return (r;) shown in this table: Based on these figures and the weights , what returns do you believe that Portfolios A and B will earn? Which portfolio you would invest in and why? a. The beta of portfolio A is (Round to three decimal places.) Asset 1 2 Asset Beta 1.26 0.66 1.28 1.08 0.86 Portfolio Weights Portfolio A Portfolio B 16% 35% 29% 6% 7% 19% 8% 18% 40% 22% 3 4 5 Total 100% 100% J Asset 2 3 4 Returns 6.5% 5.5% 9.5% 8.5% 6.0% 5
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