2. Suppose you have $10,000 and want to invest $7,000 in Google and $3,000 in Disney. What is the beta of your two-stock portfolio?
3. Given that the T-bills rate is 1%, and the expected return for the market is 6%, what is the expected return of (use the CAPM):
c. Your portfolio
4. Based on your Online Research Assignment, answer the following questions: It turns out that there are a few ways to calculate beta. Which method would you choose? Why?
1. The expected return for stock A is 22% with a standard deviation of 25%. The expected return for stock B is 13% with a standard deviation of 15%.
a. Which stock is riskier?
b. If you had $1,000 to invest, would you put all $1,000 in one or the other stock, or both?
2. The expected return for a stock is 10% with a standard deviation of 13%. If returns are normally distributed, what is the probability that the stock:
a. returns more than 20%?
b. results in a loss (negative returns)?
3. Suppose the two stocks A and B from problem 1 have a correlation coefficient of 0.2. What is the standard deviation of a portfolio consisting of equal proportions of A and B?
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