Bankers Corp Has a Very Conservative Beta of

question 37

Essay

Bankers Corp has a very conservative Beta of .7,while Biotech Corp has a Beta of 2.1.Given that the T-bill rate is 5%,and the market is expected to return 15%,what is the expected return of Bankers Corp,Biotech Corp,and a portfolio composed of 60% of Bankers Corp and 40% Biotech Corp?
a.Solve this problem first by weighting the Betas to calculate a portfolio Beta,and then using CAPM to calculate the portfolio expected return.
b.Then solve the problem again by calculating the expected return of each asset and weighting those returns to calculate the portfolio expected return.
c.Why is Biotech Corp's expected return NOT three times that of Bankers Corp?

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Definitions:

Playing with Words Fallacy

A form of argument that manipulates the linguistic nuances of words to persuade, often misleadingly.

Circular Reasoning

A logical fallacy where the conclusion of an argument is used as a premise of the argument itself.

Hypothetical

Involving or based on a suggested idea or theory rather than actual evidence.