Problem 12-6 Market Model The return on the market is 15.6 percent and there are

Question

Problem 12-6 Market Model

  

  

  

The return on the market is 15.6 percent and there are no unsystematic surprises in the returns. What is the return on each stock? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

  

  

Assume a portfolio has weights of 25 percent Stock A, 40 percent Stock B, and 35 percent Stock C. The return on the market is 15.6 percent and there are no unsystematic surprises in the returns. What is the return on the portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

  

The following three stocks are available in the market:

Explanation / Answer

Market model :

expected return of stock = alpha + beta*market return

Stock Expected return Beta Alpha Expected return with market return = 15.6 Weight Weight X Expected return A 11.2 1.34 -8.632 12.272 0.25 3.068 B 14.4 1.14 -2.472 15.312 0.4 6.1248 C 16.9 1.54 -5.892 18.132 0.35 6.3462 Market 14.8 Portfolio return= sum= 15.539

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---