CFA CFA Level 1 Question of the Week – Portfolio Management

Question of the Week – Portfolio Management

  • This topic has 4 replies, 4 voices, and was last updated Mar-18 by LeChiffre.
  • Author
    Posts
    • AdaptPrep
      Participant
      Up
      0
      Down

      An investor creates a portfolio by investing 20% of his money in the risk-free asset, 30% in the market portfolio, and 50% in a US stock that has a beta of 2.5. The risk-free rate is 5% and the market return is 14%.

      The expected return on the portfolio is closest to:

      • 17%
      • 19%
      • 21%
    • BrentSchneider
      Participant
      Up
      4
      Down

      Ooops. I forgot to subtract my 5%. 18.95% is answer.

    • hairyfairy
      Participant
      Up
      4
      Down

      Completely went off track here. I’m not myself today…

    • AdaptPrep
      Participant
      Up
      4
      Down
      • beta(RF) = 0
      • beta(M) = 1
      • beta(US) = 2.5

      beta(portfolio) = 0.2(0) + 0.3(1) + 0.5(2.5) = 1.55

      Expected return (CAPM) = 0.05 + 1.55(0.14 – 0.05) = 18.95%

    • LeChiffre
      Participant
      Up
      3
      Down

      (0.2*0.05)+(0.3*0.14)+(0.5)*(0.05+(2.5)*(0.14-0.05)) = 0.1895

Viewing 4 reply threads
  • You must be logged in to reply to this topic.