Jamie Peters invested $100,000 to set up the following portfolio 1 year ago. (see table).
|
Asset
|
Cost
|
Beta at purchase
|
Yearly income
|
Value today
|
|
A
|
820,000
|
0.80
|
$1,600
|
$20,000
|
|
B
|
35,000
|
0.95
|
1,400
|
36,000
|
|
C
|
30,000
|
1.50
|
-
|
34,500
|
|
D
|
15,000
|
1.25
|
375
|
16,500
|
Question 1: Calculate the portfolio beta on the basis of the original cost figures.
Question 2: Calculate the percentage return of each asset in the portfolio for the year/
Question 3: Calculate the percentage return of the portfolio on the basis of original cost, using income and gains during the year.
Question 4: At the time Jamie made his investments, investors were estimating that the market return for the coming year would be 10%. The estimate of the risk-free rate of return averaged 4% for the coming year. Calculate an expected rate of return for each stock on the basis of its beta and the expectations of market and risk-free returns.
Question 5: On the basis of the actual results, explain how each stock in the portfolio performed relative to those CAPM-generated expectations of performance. What factors could explain these differences?