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Estimate of the stock''s expected rate of return

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1. Suppose you currently expect the stock in Example 10.1 to earn a 9% rate of return. Then some macroeconomic news suggest that GDP growth will come in at 6% instead of 4%. How will you revise your estimate of the stock's expected rate of return?

2.. A Portfolio is invested in a very large number of shares (n is large). However, one-half of the portfolio is invested in stock 1, and the rest of the portfolio is equally divided among the other n-1 shares. Is this portfolio well diversified?

3. Another portfolio invests in the same n shares (as above) and where n is very large. Instead of equally weighting with portfolio weights of 1/n in each stock, the weights in half the securities are 1.5/n while the weights in the other shares are 0.5/n. Is this portfolio well diversified?

Reference no: EM132662241

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