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Calculation Of Expected Return And Systematic Risk Of Portfolio
Question
Use the following information to answer the questions below.
Security 
Return 
Standard Deviation 
Beta

A 
15% 
8% 
1.2 
B 
12% 
14% 
0.9 
a. Which of A and B has the least total risk? The least systematic risk?
b. What is the value of systematic risk for a portfolio with 75% of the funds invested in A and 25% of the funds invested in B?
c. Calculate the risk free rate of return and the market risk premium (i.e., Rf and RM – Rf).
d. What is the portfolio expected return and the portfolio beta if you invest 30% in A, 30% in B, and 40% in the riskfree asset? (For questions (d) and (e), assume the risk free rate of return is 5%.)
e. What is the portfolio expected return with 125% invested in A and the remainder in the riskfree asset via borrowing at the riskfree interest rate?
f. What is the beta of the portfolio created in part (e)?
Summary
The question belongs to Finance and it discusses about calculating systematic risk of a portfolio and the expected return from the portfolio. These calculations have been presented in the solution.
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