Essay
Bankers Corp has a very conservative Beta of .7,while Biotech Corp has a Beta of 2.1.Given that the T-bill rate is 5%,and the market is expected to return 15%,what is the expected return of Bankers Corp,Biotech Corp,and a portfolio composed of 60% of Bankers Corp and 40% Biotech Corp?
a.Solve this problem first by weighting the Betas to calculate a portfolio Beta,and then using CAPM to calculate the portfolio expected return.
b.Then solve the problem again by calculating the expected return of each asset and weighting those returns to calculate the portfolio expected return.
c.Why is Biotech Corp's expected return NOT three times that of Bankers Corp?
Correct Answer:
Verified
a. Bp = .6 × .7 + .4 × 2.1)= 1.26 Kp = .05...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q3: Beta represents the average movement of a
Q6: The category of securities with the highest
Q32: An investor currently holds the following portfolio:
Q34: Because risk is measured by variability of
Q39: Which of the following investments is clearly
Q41: According to the CAPM,for each unit of
Q47: Accounting profits is the most relevant variable
Q77: The beta of ABC Co.stock is the
Q117: You purchased 500 shares of A.M.J.Inc.common stock
Q148: A stock with a beta of 1.4