Homework Answers
a). According to the capm,
r = rF + [Beta * (kM - rF)]
= 5% + [1.3 * (11% - 5%)] = 5% + [1.3 * 6%] = 5% + 7.8% = 12.8%
r = [P1 - P0 + D1] / P0
0.128 = [P1 - $62.75 + $2.20] / $62.75
0.128 * $62.75 = P1 - $60.55
$8.032 + $60.55 = P1
P1 = $68.582
b). Portfolio's Beta =
[Weighti * Betai]
= [0.25 * 1.3] + [0.40 * 0.9] + [0.35 * 1.1]
= 0.325 + 0.36 + 0.385 = 1.07
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