|
A two-stock portfolio consists of the following:
-
The portfolio consists of stock of Green Company (portfolio weight 30%) and Blue Company (portfolio weight 70%).
-
Green’s expected return is 12%, Blue’s is 8%.
-
Interest rates are expected to be 6%.
-
Oil prices are expected to rise 2%.
-
The two-factor model for Green Company is R(green) = 12% − 0.5 Fint − 0.5 Foil + egreen
-
The two-factor model for Blue Company is R(blue) = 8% + 0.8 Fint + 0.4 Foil + eblue
If interest rates are actually 9% and oil prices do not rise, the return on the portfolio will be:
A. 12.89%.
B. 10.55%.
C. 10.17%.
|
