What is the beta of the portfolio, Corporate Finance

Question:

There are two stocks, stock A and stock B. The price of stock A today is $70. The price of stock A next year will be $50 if the economy is in recession, $80 if the economy is normal and $95 if the economy is expanding. The attendant probabilities of recession, normal times, and expansion are 0.2, 0.6, 0.2, respectively. Stock A pays no dividend. Assume the CAPM is true. Other information about the market includes:

SD(Rm)            = Standard deviation of the market portfolio = 0.10

SD(Rb)            = Standard deviation of stock B's return = 0.12

Rb                    = Expected return on stock B = 0.10

Corr(Ra,Rm)     = The correlation of stock A and the market = 0.7

Corr(Rb,Rm)     = The correlation of stock B and the market = 0.34

Corr(Ra,Rb)      = The correlation of stock A and stock B = 0.6

What is the beta of the portfolio consisting of 30% of stock A and 70% of stock B?

Posted Date: 2/18/2013 2:02:10 AM | Location : United States







Related Discussions:- What is the beta of the portfolio, Assignment Help, Ask Question on What is the beta of the portfolio, Get Answer, Expert's Help, What is the beta of the portfolio Discussions

Write discussion on What is the beta of the portfolio
Your posts are moderated
Related Questions
Question 1: Compare and contrast the Capital Asset Pricing Model with that of the Arbitrage Pricing Theory. Question 2: (a) Explain the concept of stock market efficien

X has 10 shareholders, each of whom owns 100 of its 1,000 outstanding shares of common stock (worth $100 per share).  No other stock is outstanding.  Determine whether the securiti

Question: A U.S company has a liability of € 10 million in fixed rate loans outstanding at 6%. A German company has a $15 million Floating Rate Note outstanding at LIBOR. The e

Question: a) Provide an analytical derivation of the Capital Asset Pricing Model (CAPM) and supplement your analysis with diagrammatic illustrations where appropriate. b) T

Question: a) Using illustrative and numerical examples, differentiate between speculation and arbitraging in the context of foreign exchange market. b) One year borrowing

This institute is a leading oil and gas industry trade association. The American Petroleum Institute is concerned with public policy and industry lobbying efforts, health and safet

I wanna know how much u cost for the solution of my question (problem)

Determinants of growth - Profit Margin Dividend Policy   Financial Policy Total asset Turnover

For a large set of SKUs and in two successive selling seasons, we have compared the accuracy of three quantitative forecasting methods based on advance (preview) demand information

Red Lake Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 milli