Problem 1:
You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .75, -1.2, .90, 1.3, 1.5. The risk free return is 4% and the market return is 9%. (Not a multiple choice problem)
A. Compute the beta of the portfolio
B. Compute the required return of the portfolio
Problem 2:
You are given the following probability distribution for a stock: (Not a multiple choice problem)
Pr. Outcome.5
.4 10%
.1 -6%
.5 12%
A. Compute the expected return of this stock
B. Compute the standard deviation
Problem 3:
You are given the following probability distribution for a stock: (Not a multiple choice problem)
Pr. Outcome.6
.4 -4%
.6 12%
A. Compute the expected return
B. Compute the standard deviation
C. Presuming the stock returns are normally distributed, what do these results indicate?
Problem 4:
A stock has a beta of 0.8. The market return is 14% and the risk free return is 3%. Compute the required return for this stock.