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Jason Jackson is attempting to evaluate 2 possible portfolios consisting of the same 5 assets...

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Finance

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:

Portfolio Weights Asset Asset Beta Portfolio A Portfolio B 1 1.25 17 34 2 0.67 35 13 3 1.22 11 17 4 1.09 13 20 5 0.89 24 16 Total 100 100

.

a. Calculate the betas for portfolios A and B.

b. If the risk-free rate is

2.4%

and the market return is

8.9%,

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

(rj)

shown in this table:

Asset Returns 1 6.5 2 5 3 7.5 4 8.5 5 8.5

. 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?

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