Calculate the beta of portfolio y

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Reference no: EM132699132

Question 1

Portfolio X consists of 4 stocks which are A, B, C, and D. The information pertaining to the stocks, the portfolio and the market are given below:

Stock Investment Beta

A $25,000 0.8

B $25,000 1.2

C $25,000 Not available

D $25,000 Not available

Portfolio X $100,000 1

Expected return of the market = 10%

Risk-free rate = 4%

(a) Calculate the beta of Portfolio Y that is equally invested in stock A and stock B.

(b) Compute the beta of Portfolio Z that is equally invested in stock C and stock D.

(c) Suppose you sell all $25,000 invested in Stock A and use the proceeds to invest in Stock B. Calculate the resulting value of the beta of Portfolio X.

(d) Compute the change in the expected return of Portfolio X resulting from your actions in part (c).

(e) Discuss the likely circumstances where you would sell a stock with a lower beta and invest the proceeds in a stock with a higher beta, as in part (c).

Reference no: EM132699132

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