The complete question says: "Cheyenne holds a $7,500 portfolio that consists of four stocks. Her investment in each stock, as well as each stock’s beta, is listed in the following table:" The complete table for the question can be seen in the image attached below.
Cheyenne’s portfolio’s beta is 0.965 and the required return is 9.31%
What is portfolio beta and the required return rate?
A portfolio's beta is the model that measures the stock's return while estimating the market risk.
The required rate of return is the minimal return an investment will take for holding a company's shares in exchange for taking on a certain amount of risk.
The formula for calculating Portfolio's Beta is:
= Sum of (Beta × Weights)
[tex]\mathbf{= (1 \times (\dfrac{2625}{7500})) + (1.50 \times (\dfrac{1500 }{ 7500})) + (1.10 \times (\dfrac{1125 }{ 7500})) + (0.50 \times (\dfrac{2250 }{ 7500}))}[/tex]
= 0.35 + 0.30 + 0.165 + 0.15
= 0.965
Required Return = Risk Free Rate + (Beta × Premium Market Risk)
= 4% + (0.965 × 5.5%)
= 0.04 + (0.965 × 0.055)
= 9.31%
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