You hold the positions in the following table. What is the beta of your portfolio? If you expect the market to earn 12 percent and the risk-free rate is 3.5 percent, what is the required return of the portfolio?

This problem can be solved two different and equivalent ways. Both ways require the weights of the stocks in the portfolio. In one method, compute the required return for each stock and then use the weights to form the portfolio required return. The other solution uses the weights to compute the portfolio beta. This portfolio beta is used to compute the portfolio required return. The solution below shows the portfolio beta approach.

  • CreatedSeptember 23, 2014
  • Files Included
Post your question