Richard Morgan, another individual investor wants to purchase four stocks for his portfolio. The expected return,...
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Richard Morgan, another individual investor wants to purchase four stocks for his portfolio. The expected return, portfolio weights, and the betas of the stocks are given below. Stocks Goodman Industries Renfro Inc. Heath Inc. Lincoln Inc. Beta 0.7 0.79 1.1 1.44 Portfolio weight Expected return 9.20% 9.74% 11.60% 13.64% 30% 20% 30% 20% i. Calculate the portfolio beta. ii. Calculate the portfolio's required rate of return. i overconfidence ii. self-attribution bias ili herding 8. Efficient Markets Hypothesis (EMH) holds that security prices adjust quickly to new intrinsic value as soon as new information becomes available. Distinguish among the three forms of the EMH. 9. A new body of evidence is emerging in the field of behavioral finance which shows that investors often behave irrationally, but in predictable ways. Explain the following biases that affect the rationality of people's decision-making process: 10. The Fama-French three-factor model predicts stock's return given the return of the market, the SMB portfolio, and the HML portfolio. The model is given as: Predicted return = a; + b; (r M,+ ci(r SMB,1)+d; (r HML,d). You have estimated that a₁ = 0, b₁ = 1.2. q = -0.4. and di =1.3. On May 1, the market return (M,t). was 10%, the return on the SMB portfolio (rSMB) was 3.2%, and the return on the HML portfolio (HML) was 4.8%. i. using the model, predict the stock's return for the month of May 1. ii. if the actual return of the stock is 17.5% on May 1, calculate the unexplained return of the stock. Richard Morgan, another individual investor wants to purchase four stocks for his portfolio. The expected return, portfolio weights, and the betas of the stocks are given below. Stocks Goodman Industries Renfro Inc. Heath Inc. Lincoln Inc. Beta 0.7 0.79 1.1 1.44 Portfolio weight Expected return 9.20% 9.74% 11.60% 13.64% 30% 20% 30% 20% i. Calculate the portfolio beta. ii. Calculate the portfolio's required rate of return. i overconfidence ii. self-attribution bias ili herding 8. Efficient Markets Hypothesis (EMH) holds that security prices adjust quickly to new intrinsic value as soon as new information becomes available. Distinguish among the three forms of the EMH. 9. A new body of evidence is emerging in the field of behavioral finance which shows that investors often behave irrationally, but in predictable ways. Explain the following biases that affect the rationality of people's decision-making process: 10. The Fama-French three-factor model predicts stock's return given the return of the market, the SMB portfolio, and the HML portfolio. The model is given as: Predicted return = a; + b; (r M,+ ci(r SMB,1)+d; (r HML,d). You have estimated that a₁ = 0, b₁ = 1.2. q = -0.4. and di =1.3. On May 1, the market return (M,t). was 10%, the return on the SMB portfolio (rSMB) was 3.2%, and the return on the HML portfolio (HML) was 4.8%. i. using the model, predict the stock's return for the month of May 1. ii. if the actual return of the stock is 17.5% on May 1, calculate the unexplained return of the stock.
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Answer rating: 100% (QA)
To calculate the portfolio beta you need to multiply each stocks beta by its portfolio weight and sum the results Heres how you can calculate it Portfolio Beta Beta of Goodman Industries Portfolio Wei... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 978-1305635937
Concise 9th Edition
Authors: Eugene F. Brigham
Posted Date:
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