|
SECURITY
|
BETA
|
EXPECTED RETURN
|
AMT. OF INVESTMENT
|
|
Matthew
|
2.40
|
18.0%
|
$1,000
|
|
Luke
|
.85
|
8.0%
|
$2,500
|
|
John
|
1.65
|
12.0%
|
$1,500
|
1) What is the level of systematic risk of the portfolio described in the table?
2) What is the expected return for this portfolio of 3 stocks?
3) Now, ignoring the returns give in the above table, assume that the risk-free rate is 3.0% and the return on the market portfolio is currently 8.0%. According to the capital asset pricing model (CAPM), what is the expected return for each of these three individual stocks?
4) Using the assumptions given in "c", what risk-premium do investors require for investing in each individual corporation (3 answers)?
5) What is the market risk premium in c & d?