Part 6: d: As per the question A has a weight of $100 while B has a weight of $300 additional
weight is being provided by $400. Hence the value of the portfolio = Existing amount + new
amount = 400 + 400 = 800.
Beta from Stock A = 100/800*1.4 = 0.175
Beta from Stock B = 300/800*0.6 = 0.225
Hence the total beta of the portfolio = 0.175+0.225 = 0.4. However desired beta is 1.1 hence
the lag in the Beta which is 1.1-0.4 = 0.7. This would be provided by stock C since the Beta
of risk free asset is 0.
Beta from Stock C = $ weight/Portfolio Value* Stock Beta = Desired Beta
Beta from Stock C = $ weight/800* 1.6 = 0.7 = 0.7*800/1.6 = 350
Hence the amount to be invested in Risk free asset is $400-$350 = $50
Part 7: a: This is due to the diversification benefits present in the portfolio which changes
with the change of weights of the securities in a portfolio.
Part 8:b:
Arithmetic mean: Stock returns / Number of return = 4%+9%+(-6%)+18%/4 = 25%/4 =
6.25%
Geometric mean = (1+Return)^1/N = (1.04*1.09*0.94*1.18)^(1/4) = ((1.2573)^0.25)-1 =
1.0589 – 1 = 5.89%
Part 9: d: The total number of shares = 300
The stock dividend = 5%
Hence the extra additional shares received by the investor is 300*5% = 15 Shares. The new
shareholding by the investor would be 300+15 = 315 shares.

+13062052269

info@desklib.com

Stock Market Asset Question 2022

Contribute Materials

Related Documents