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Brilliant_brown [7]
3 years ago
11

UPS, a delivery services company, has a beta of 1.4, and Wal-Mart has a beta of 0.9. The risk-free rate of interest is 4% and th

e market risk premium is 6%. What is the expected return on a portfolio with 50% of its money in UPS and the balance in Wal-Mart? Group of answer choices
Business
1 answer:
Elena-2011 [213]3 years ago
7 0

Answer:

10.9%

Explanation:

to calculate the expected return of the portfolio, we first need to calculate the portfolio's beta:

the portfolio beta = (beta UPS stock x weight UPS stock) + (beta Walmart stock x weight Walmart) = (1.4 x 50%) + (0.9 x 50%) = 0.7 + 0.45 = 1.15

portfolio's expected return = risk free rate + (portfolio beta x market risk premium) = 4% + (1.15 x 6%) = 4% + 6.9% = 10.9%

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If the goods are alternative products, the cross elasticity of demand is tremendous which means that demand for one product will increase when the charge of the alternative product will increase and vice versa

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Giving the following information:

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