An Investor Is Considering the Three Equities Given Below A
Equity B and C: Rp =

question 30

Essay

An investor is considering the three equities given below:
$\begin{array}{|l|l|l|}\hline\text { Equity } & \text { Expected Return } & \text { Beta } \\\hline \text { A } & 6.0 \% & -0.10 \\\hline \mathrm{B} & 13.3 \% & 2.10 \\\hline \mathrm{C} & 9.2 \% & 0.75 \\\hline \text { Market Portfolio } & 10.0 \% & 1.00 \\\hline \text { T-Bills } & 7.0 \% & 0.00 \\\hline\end{array}$
A.
Equity B and C: Rp = .5(13.3%)+ .5(9.2%)= 11.25%
Equity B and C: b p = .5(2.1)+ .5(0.75)= 1.425
Equity B and T-bills: b_B&TBILL = .5(2.1)+ .5(0)= 1.05
Equity's B and A: b_B&A = .5(2.1)+ .5(-0.1)= 1.00
C.Demonstrate that holding equity A actually reduces risk by comparing the risk of a portfolio equally weighted between equity B and T-Bills with a portfolio equally weighted between equity B and

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Definitions:

Stock Acquisition

The process of purchasing shares of a company, thereby obtaining a portion of its ownership.

Voting Control

The power to influence or determine outcomes within an organization or governing body through the right to vote.

Commerce Clause

A provision in the U.S. Constitution that grants Congress the power to regulate trade between states, with foreign nations, and among Indian tribes.

Wickard V. Filburn

A landmark Supreme Court case in 1942 that greatly expanded the power of the federal government to regulate economic activity under the Commerce Clause.