3 years ago

Higher consumer prices are likely to be accompanied by:

1 answer:

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Higher consumer prices are likely to be accompanied by D. higher interest rates. It leads<span> to increasing the company's cost of raising capital ant then to higher cost production.</span>

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A stock has a beta of 1.90 and an expected return of 15 percent. A risk-free asset currently earns 3.6 percent. a. What is the e

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Answer:

a. E(Rp) = W1 * E(R1) + W2 * E(R2) : W = Weight of risk free asset in portfolio , E(R) = Return of risk free asset

Expected Return of Portfolio = 0.5*3.6 + 0.5*15

Expected Return of Portfolio = 1.8 + 7.5

Expected Return of Portfolio = 9.3%

b. When a portfolio is composed of one risk free asset and one another risky stock

бp = W1 * б1

The S.D. of a stock or portfolio in this case as given by Beta

0.95 = W1 * 1.9

W1 = 0.95/1.9

W1 = 50%

Weight of risk free asset = 1 - 0.5

Weight of risk free asset = 50%

c. E(Rp) = W1 * E(R1) + W2 * E(R2)

7 = W1 * 3.6 + W2 * 15

With Trial and error method: W1 = 0.7, W2 = 0.3

Beta of Portfolio = 0.3 * 1.9

Beta of Portfolio = 0.57

d. Beta of Portfolio = Weight of risky asset * Beta of risky stock

3.8 = W * 1.9

W = 3.8/1.9

W = 2

Weight of risk free asset = 1 - 2

Weight of risk free asset = -1.

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