Elle holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as...

Question:

Elle holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stocks's beta is listed in the following table:

Stock Investment Beta Standard Deviation
Perpetualcold Refrigeration Co. (PR) $1,750 0.80 9.00%
Tobotics, Inc.(TI) $1,000 1.70 11.00%
Western Gas & Electric Co. $750 1.10 16.00%
Fitcom Corp. (FC) $1,500 0.30 25.50%

Suppose all stock's in Elle's portfolio were equally weighted. Which of these stocks would contribute the LEAST market risk to her portfolio?

a.) Tobotic's, Inc.

b.) Fitcom Corp.

c.) Western Gas & Electric Co.

d.) Perpetualcold Refrigeration Co.

Suppose all stocks in the portfolio were equally weighted. Which of the stocks would have the LEAST amount of standalone risk?

a.) Perpetualcold Refrigeration Co..

b.) Western Gas & Electric Co.

c.) Tobotic's Inc.

d.) Fitcom Corp.

If the risk- free rate is 7% and the market risk premium is 9%, what is Elle's portfolio beta and required return?

a.) 1.313

b.) 0.586

c) 0.744

d.) 0.875

Portfolio Return, Beta:

Investments in risky equity stocks, bonds & risk free securities in various proportions are known as portfolios. Portfolios can be generated to offer higher returns and lower risks, than by investing in risky assets.

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Answer a

Data

  • Total portfolio investment = $5,000

Suppose all four stocks in Elle's portfolio were equally weighted.

The stock that would...

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Portfolio Weight, Return & Variance: Definition & Examples

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Chapter 12 / Lesson 1
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A portfolio can be designed in several different ways. It is important to understand the basics of a portfolio before building and managing one. In this lesson, we will go over the weight, return, and variance of a portfolio.


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