9.1 How do lending (borrowing) possibilities change the Markowitz model?
9.4 What is the market portfolio?
9.7 How can we measure a security’s contribution to the risk of the market portfolio?
9.10 What are the difficulties involved in estimating a security’s beta?
9.13 What is “the law of one price”?
9.21 What is a factor model?
9.25 How can APT be used in investment decisions?
9.1 Assume that the annual price data below is for General Foods and a broad stock market index, covering the period 2003–2018. Calculate the beta for General Foods. Use the ESTLIN function or the SLOPE function in the spreadsheet.
9.2 Given the information below, calculate the portfolio beta and the expected return on this two-stock portfolio using the CAPM.
If the weights were 50/50, would this increase or decrease the portfolio return?
If the market’s expected return had been 8 percent with the 60/40 weights, would this increase or decrease the portfolio return?
|Market’s Expected Return||9%|
|Beta for Bateman Industries||0.98|
|Beta for Advanced Solar Arrays||1.34|
|Weight for Bateman||60%|
|Weight for Solar Arrays||40%|
|Expected Return on the Portfolio|
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