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Suppose that a portfolio consists of the following stocks: Stock Amount Beta Chevron $20,000 0.70 General Electric 40,000 1.30 Whirlpool 40,000 1.10 The risk-free rate (r f ) is 5 percent and the market risk premium (r m – r f ) is 8.8 percent. a. Determine the beta for the portfolio. b. Determine how much General Electric stock one must sell and reinvest in Chevron stock in order to reduce the beta of the portfolio to 1.00. c. Determine the expected return on the portfolio in parts a and b.

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Financial Management, Finance

Category:- Financial Management
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