For the information given below find the following: Calculate the expected retur

Question

For the information given below find the following: Calculate the expected return on your portfolio. Calculate the portfolio's beta. Suppose you drop stock # 2 from your portfolio and replace it with another stock that has a beta of 1.35 and an expected return of 25%, how your portfolio's return and beta would be affected by this change? Answer the question intuitively and then calculate the new return and beta. Taggart Inc.'s stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm's expected rate of return? What is the standard deviation? Dothan Inc.'s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the

Explanation / Answer

As the beta of the stock replaced is greater than B, its more volatile & thus the expected return was ought to be higher than that of B. Intuitively you need to calculate the mean return of the portfolio to judge the effect on the portfolio's return. Secondly, replacing B and calculating new return would only involve copying the previous steps as done while using B.

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