It's a simple question for portfolio management
You own a portfolio consisting of the following shares:
Share % of
Portfolio
Beta Expected Return
Harvey Norman Limited 20% 1.00 16%
National Australia Bank limited 30% 0.85 14%
Qantas Airways Limited 15% 1.20 20%
Origin Energy Limited 25% 0.60 12%
BHP Billiton limited 10% 1.60 24%
The risk-free rate is 7%. Also, the expected return on the market portfolio is 15.5%.
(a) Calculate the expected return on you portfolio. (1 mark)
(b) Calulate the portfolio beta. (1 mark)
(c) Given the information above, plot the security market line and plot the shares from your
portfolio
on the graph. (1 mark)
(d) From your plot in the part (c), which shares appear to be the winners and which ones appear to
be the losers? (1 mark)
(e) Why should you consider your conclusion in part (d) to be less than certain? (1 mark)
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You own a portfolio consisting of the following shares: Share % of Beta Expected Return Portfolio Harvey Norman Limited 20% 1.00 16% National Australia Bank limited 30% 0.85 14% Qantas Airways Limited 15% 1.20 20% Origin Energy Limited 25% 0.60 12% BHP Billiton limited 10% 1.60 24% The risk-free rate is 7%. Also, the expected return on the market portfolio is 15.5%. (a) Calculate the expected return on you portfolio. (1 mark) (b) Calulate the portfolio beta. (1 mark) (c) Given the information above, plot the security market line and plot the shares from your portfolio on the graph. (1 mark) (d) From your plot in the part (c), which shares appear to be the winners and which ones appear to be the losers? (1 mark) (e) Why should you consider your conclusion in part (d) to be less than certain? (1 mark)