Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 1. tom has $300,000 to invest. he invests his mone

1. Tom has $300,000 to invest. He invests his money into four stocks with the following...

Free

60.2K

Verified Solution

Question

Finance

1. Tom has $300,000 to invest. He invests his money into fourstocks with the following betas:

Stock A= $120,000 Beta: 2.15

Stock B= $75,000 Beta: 0.40

Stock C= $50,000 Beta: 0.85

Stock D= $55,000 Beta: 0.66

The risk-free rate is 4%, and the expected market return is 9%Compute the required rate of return on the portfolio.

Answer & Explanation Solved by verified expert
4.0 Ratings (691 Votes)

Ans 10.11%

Stock INVESTMENT (i) Beta (ii) Investment* Beta (i)* (ii)
A              1,20,000                     2.15                         2,58,000.00
B                 75,000                     0.40                            30,000.00
C                 50,000                     0.85                            42,500.00
D                 55,000                     0.66                            36,300.00
Total              3,00,000                         3,66,800.00
AVERAGE BETA = (INVESTMENT * BETA) / TOTAL INVESMENT
366800 / 300000
1.222666667
Expected Return = Risk free Return + (Market Return - Risk free return)* Beta
Expected Return = 4% + (9% - 4%) *1.222666667
Expected Return = 10.11%
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Write the equation of the tangent line to the graph of ?(?) = (2)/(3??) at the...

Basic Math
Q

How has the bacterium Y. pestis evolved to become virulent (based on your assigned literature and...

Biology
Q

Scenario XYZ Corporation owns a landfill that was acquired in the purchase of a small waste management...

General Management
Q

30 2r 5 HH H 15 7r A 4 SSS B 1 2 ASA SAS...

Geometry
Q

29 of Which one of the following is NOT a typical expense covered by Medical...

Basic Math
Q

Find the eigenvalues and bases for the eigenspaces of the linear opera T M M...

Basic Math
Q

How many milliliters of water are in the measuring cup ml 3 500 ml 400...

Algebra
Q

Which of the following defines Discretionary Cost Center the most? Select one: A...

Accounting
Q

Lowell Bank reported the following checking account fees: $2.70 to see a real-live teller, $28.70...

Accounting
Q

Parent Company holds 75 percent of Surrogate Companys voting common shares. On December 31, 20X8,...

Accounting
Q

Under what circumstances would you take the balloon payment scheme discussed in Table 8.3? accounting...

Finance
Q

gontario.ca/dz/ie/content/12258063/viewContent/99562418/View ???as??ea ?-ti%2 _ uite .vmaaaa m sast?.kiittickit . ble of Contents Unit 1 Discrete...

Finance