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  3. (12 points) consider the following 4-stock portfol

(12 points) Consider the following 4-stock portfolio: Stock ...

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Question

Finance

  1. (12 points) Consider the following 4-stock portfolio:

Stock

Investment

Beta

A

$100,000

1.50

B

$150,000

-0.25

C

$250,000

1.25

D

$500,000

0.75

The market required rate of return is 12 percent and the risk-free rate is 4 percent.

  1. Use the SML equation to find the required rate of return of each of the four stocks in the portfolio. (3 marks)

  1. Use your results in part a. to find the required rate of return of the portfolio. (3 marks)

  1. Find the beta (b) of this portfolio. (3 marks)

  1. Use the portfolio b you obtained in part c. and the SML to verify that the required rate of return of the portfolio is the same as that in part b. (3 marks)

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