(Portfolio beta and CAPM)You are putting together a portfolio made up of four different stocks....
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(Portfolio beta and CAPM)You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings:
| Portfolio Weightings | ||||
| Asset | Beta | First Portfolio | Second Portfolio | |
|---|---|---|---|---|
| A | 2.50 | 10% | 40% | |
| B | 1.00 | 10% | 40% | |
| C | 0.50 | 40% | 10% | |
| D | 1.50 | 40% | 10% | |
a.What is the beta on each portfolio?
b.Which portfolio is riskier?
c.If the risk-free rate of interest were 4 percent and the market risk premium were 5 percent, what rate of return would you expect to earn from each of the portfolios?
a.The beta on the first portfolio is
. (Round to three decimalplaces.)
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