question archive (a) Calculate beta and required rate of returns of the respective portfolio by using Capital Asset Pricing Model (CAPM)
(a) Calculate beta and required rate of returns of the respective portfolio by using Capital Asset Pricing Model (CAPM)
Subject:BusinessPrice: Bought3
(a) Calculate beta and required rate of returns of the respective portfolio by using Capital Asset Pricing Model (CAPM). Assume that a beta of 1.45 and 0.76 for Stock A and Stock B respectively. A return on a market portfolio (Rm) of 9 percent and a risk-free rate (Rf) of 2 percent. (Calculations must be done manually. Show all workings:
| Portfolio: | P1 | P2 | P3 | P4 | P5 | P6 | P7 | P8 | P9 | P10 | P11 |
| Stock A | 100% | 90% | 80% | 70% | 60% | 50% | 40% | 30% | 20% | 10% | 0% |
| Stock B | 0% | 10% | 20% | 30% | 40% | 50% | 60% | 70% | 80% | 90% | 100% |
| Beta | BP1 | BP2 | BP3 | BP4 | BP5 | BP6 | BP7 | BP8 | BP9 | BP10 | BP11 |
| Required Return | RP1 | RP2 | RP3 | RP4 | RP5 | RP6 | RP7 | RDP8 | RP9 | RP10 | RP11 |
(22 marks)
(b) Which portfolio(s) is/are good to create? Provide a reason.
(4 marks)
(c) Which portfolio(s) is/are overvalued and undervalued?
(11 marks)
