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You have observed the following returns over time: Year Stock x Stock Y Market 2011 12% 14% 14%...

Question:

You have observed the following returns over time:

Year Stock X Stock Y Market
2011 12% 14% 14%
2012 19% 7% 10%
2013 -17% -5% -14%
2014 4% 1% 2%
2015 22% 13% 18%

Assume that the risk-free rate is 6% and the market risk premium is 6%. Do not round intermediate calculations.

1. What is the beta of Stock X? Round your answer to two decimal places.

2. What is the beta of Stock Y? Round your answer to two decimal places.

3. What is the required rate of return on Stock X? Round your answer to one decimal place.

4. What is the required rate of return on Stock Y? Round your answer to one decimal place.

5. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Round your answer to one decimal place.

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Stock Beta:

Stock Beta is a measure of correlation between the stock returns and the market returns. It measures the movement of stock with respect to the market movement. A beta of 1 signifies that the stock moves at the same pace as the market.

Answer and Explanation:

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Given information:

  • Risk free rate = Rf = 6%
  • Market risk premium = Rm - Rf = 6%

1. What is the beta of Stock X? Round your answer to two decimal...

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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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