A Portfolio Is Characterized by the Following A Calculate the Portfolio's Expected Return

question 99

Essay

A portfolio is characterized by the following:
$\begin{array}{llll}\text { Stock } &\$ \text { 's invested }& \text { Expected Return } & \text { Beta } \\\hline \mathrm{X} & \$ 2,000 & 15 \% & 2 \\\mathrm{Y} & \$ 8,000 & 12 \% & 1.6 \\\mathrm{Z} & \$ 2,000 & 8 \% & 1.2\end{array}$
a. Calculate the portfolio's expected return.
b. Calculate the beta of the portfolio.
c. If the return on the market is 10% and the risk-free rate is 3%, what is the required return on the portfolio?

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Definitions:

Ordinary Assets

Assets that are held for sale in the ordinary course of a business or are otherwise not capital assets, including inventory and property used in a trade or business.

Inventory

Goods and materials held by a business for the purpose of sale or production.

Trade or Business

Trade or Business refers to any activity conducted for profit or livelihood, including goods and services production, buying, selling, or providing services.

Ordinary Loss

A loss incurred in the regular operation of a business or the sale of assets used in the business that can be fully deducted in the year it occurs.