Stanislas Korowski owns a portfolio consisting of the following stocks below:

The risk-free rate is 4 percent. Also, the expected return on the market portfolio is 12 percent.

a. Calculate the expected return of the portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stocks’ expected returns, where the weights are the percentage invested in each stock.)

b. Calculate the portfolio beta.

c. Given the foregoing information, plot the security market line on paper. Plot the stocks from the portfolio on your graph.

d. From the plot in part (c), which stocks appear to be winners and which ones appear to be losers?

e. Why should Stanislas consider the conclusion in part (d) to be less than certain?

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STOCK OR PERCENTAGE OF BETA EXPECTED SECURITY PORTFOLIO RETURN 1 15% 1.05 11% 2 25% 0.75 7% 3 20% 1.15 13% 4 30% 0.75 9% 5 10% 1.80 18%