Question Description
Please answer all questions.
1. UPS, a delivery services company, has a beta of 1.6, and Wal-Mart has a beta of 0.9. The risk-free rate of interest is 6% and the market risk premium is 9%. What is the expected return on a portfolio with 40% of its money in UPS and the balance in Wal-Mart?
2. A stock market comprises 4600 shares of stock A and 1600shares of stock B. Assume the share prices for stocks A and B are $15 and $30,respectively. If you have $15,000 to invest and you want to hold the marketportfolio, how much of your money will you invest in Stock A?
3. Suppose youhave $10,000 in cash and you decide to borrow another $10,000 at a(n) 6%interest rate to invest in the stock market. You invest the entire $20,000 inan exchange-traded fund (ETF) with a 11% expected return and a 20% volatility.What is your expected return on your investment?
4. Yourretirement portfolio comprises 100 shares of the Standard & Poor's 500 fund(SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG). The priceof SPY is $118 and that of AGG is $97. If you expect the return on SPY to be11% in the next year and the return on AGG to be 6%, what is the expectedreturn for your retirement portfolio?
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