Homework 4

Due 2/20

  1. (10 points) The riskless rate is 7% and the expected return on the market is 13%. Given the stocks and their betas listed below, find the equilibrium expected returns on all of these assets.

    Beta

    American Express 1.45

    AT\&T 0.80

    CBS 1.05

    Chase Manhattan 1.10

    Cal Fed (S\ &L) 1.80

    Duke Power 0.65

    Delta Airlines 1.02

    Eastern Airlines(!!!) 1.50

    Exxon 0.80

    Financial Corp. of America 1.95

    General Motors 1.15

    IBM 1.00

    Merrill Lynch 1.90

    Marriott Corp. 1.11

    First Boston 1.40

    Sony 1.15

    Nationsbank 0.95

    Fuqua Industries 1.10

    First Wachovia 0.80

  2. (10 points) What is the beta for a portfolio with the following weights: American Express 20%, Merrill Lynch 30%, First Boston 30%, and Eastern Airlines 20%?

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