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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 risk-free 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 risk-free asset via borrowing at the risk-free 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.

Total Word Count 87

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Comments

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