(10 points) Suppose you bought four stocks a year ago and want to evaluate their performance based on the data below:
Symbol Beta Purchase Price Shares Purchase Amount Weight Current Price Current Value
TRC 1.05 $23.05 432 $9,957.60 25.0% $33.26 $14,368.32
PKG 1.97 $111.91 88 $9,848.08 24.7% $134.65 $11,849.20
LNN 0.27 $92.57 109 $10,090.13 25.4% $90.76 $9,892.84
HSIC 1.13 $66.93 148 $9,905.64 24.9% $71.06 $10,516.88
Total $39,801.45 100.0% $46,627.24
a. Suppose that the risk free rate is 3% and the expected market return is 10%. Using data from the table above, (i) compute the expected return for each stock using the CAPM formula and (ii) the actual return for each stock. Which stock(s) performed better than its expected return?
b. Also, compute (iii) the portfolio beta, (iv) the expected return of the portfolio based on the CAPM formula, and (v) the actual return for the portfolio. Are you happy with the portfolio return? Why, or why not? (Again, assume that the risk free rate is 3% and the expected market return is 10%).