Assume that both Apple and Yahoo plot on the SML. Apple has a beta of 2.6 and an expected return of 21.2%. Yahoo has a beta of 0.90 and an expected return of 9.3%
The expected return on the market portfolio is 10%and the risk-free rate is 3%. If you wish to hold a portfolio consisting of Apple and Yahoo and have a portfolio beta equal to 1.5, what proportion of the portfolio must be in Apple? What is the expected return on the portfolio?
Apple Yahoo Market Portfolio Risk-free Asset
Beta 2.6 0.9 1.0 0.0
Expected Return 21.2% 9.3% 10.0% 3.0%
What will be an ideal response?
Answer:
βp = Σ βi ∗ wi =
1.50 = 2.6 ∗ wa + 0.9 * (1-wa)
.60 = 1.7wa
wa = 0.6/1.7 = 0.353 and wy = 0.647
E(rp) = rf + β[E(rm) - rf] × βp = 3.0% + 1.50 ∗ [10.0% - 3.0%] × 1.50 = 13.5%
You might also like to view...
Which of the following is an advantage when using mobile devices for business communication?
A) Portability and flexibility B) Screen size C) Resolution D) Bandwidth, speed and connectivity E) Operational costs
Which of the following primary scales of measurement is used only for classification purposes?
A) ordinal scales B) ratio scales C) nominal scales D) interval scales E) random scales
Answer the following statements true (T) or false (F)
1. Being effective means doing things right so as to maximize the utilization of resources. 2. Yuze delivered a comprehensive and well-formatted budget spreadsheet to his boss. Unfortunately, his boss had actually expected a written report rather than a spreadsheet. While Yuze was certainly efficient, his work was not effective. 3. In a WSJ/Gallup poll, corporate executives identified industriousness, integrity, and political savvy as the three most important qualities of a manager. 4. Technical skills are more important for employees than managers, and they vary widely from job to job.
Identify and describe the four ways that employees learn organizational culture.
What will be an ideal response?