What would we expect to happen to the returns of x and y

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Question - X Ltd has a beta of 1.25 and Y Ltd has a beta of 0.5.

(a) If the market return was expected to increase by 5%, what would we expect to happen to the returns of X and Y?

(b) The expected return on the market is 9%. The yield to maturity is 3% on 10-year Australian government bonds and 5% on A-rated corporate bonds. What is the expected return for each of X and Y?

(c) If X and Y were combined in a portfolio with a weighting of 20% and 80% respectively, what would be the expected return and beta of the portfolio?

(d) Explain why beta is the relevant risk measure for a diversified investor.

Reference no: EM133173012

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