C6. Karen has the following share portfolio: 200 shares in Gippsland Nurseries Ltd (GNL); 1200 shares...

 

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C6. Karen has the following share portfolio: 200 shares in Gippsland Nurseries Ltd (GNL); 1200 shares in Alpine Bank Ltd (ABL) and 9000 shares in River Lett Ltd (RLL). Their current market prices are: $47.90 (GNL), $21.20 (ABL) and $1.10 (RLL), Karen also has $13,500 invested at the risk-free rate of 4%. Karen's investment adviser has told her that the estimates betas of her share holdings are: 1.4 for GNL, 0.8 for ABL and 1.7 for RLL. Her investment adviser has also forecast that the market risk premium will be 7.5%. a) b) c) What is the beta of Karen's portfolio? What is its expected return? Karen wishes to increase her portfolio beta to the beta of the market portfolio by reducing her risk-free investment and increasing her investment in GNL. Advise Karen on what she needs to do to achieve this outcome. C6. Karen has the following share portfolio: 200 shares in Gippsland Nurseries Ltd (GNL); 1200 shares in Alpine Bank Ltd (ABL) and 9000 shares in River Lett Ltd (RLL). Their current market prices are: $47.90 (GNL), $21.20 (ABL) and $1.10 (RLL), Karen also has $13,500 invested at the risk-free rate of 4%. Karen's investment adviser has told her that the estimates betas of her share holdings are: 1.4 for GNL, 0.8 for ABL and 1.7 for RLL. Her investment adviser has also forecast that the market risk premium will be 7.5%. a) b) c) What is the beta of Karen's portfolio? What is its expected return? Karen wishes to increase her portfolio beta to the beta of the market portfolio by reducing her risk-free investment and increasing her investment in GNL. Advise Karen on what she needs to do to achieve this outcome.

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To calculate the beta of Karens portfolio and its expected return well first calculate the weighted ... View the full answer