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ANSWER QUESTION 5 PLEASE. Expected Rate of return ...

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Question

Finance

ANSWER QUESTION 5 PLEASE.

Expected Rate of return

Scenario

Probability

T-Bills

S&P 500

Utility Company

High-Tech Company

Counter-Cyclical Company

Recession

20%

5%

-10%

6%

-25%

20%

Near Recession

20%

5%

-6%

7%

-20%

16%

Normal

30%

5%

12%

9%

15%

12%

Near Boom

10%

5%

15%

11%

25%

-9%

Boom

20%

5%

20%

14%

35%

-20%

Based on the above returns, Jenna calculated the betas of the three stocks as follows:

Beta of Utility Company = 0.22

Beta of High-Tech Company = 2.02

Beta of Counter-Cyclical Company = -1.13

Imagine you are Jenna. Prepare a report for Kevin to help him understand the concepts of risk and return. Include the following things in your report (dont just copy from the textbook, explain things in your own words):

5) What would happen if Kevin were to put 70% of his portfolio in the high-tech stock and 30% in the S&P 500 Index fund? Would this combination be better for him? Explain. Calculate the expected return and the beta of this portfolio to answer the question.

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