Calculate the existing portfolio’s ( Lyxor ChinaH and Lyxor MSIndia) beta and the new portfolio’s ( Lyxor ChinaH, Lyxor MSIndia, and Lyxor USDJIQ) beta. Assuming a risk-free rate of 2.5% and market risk premium of 5.5%, what the two portfolios’ required returns?

The required returns for the two portfolios are:

=0.0533

= 0.05049902

Explanation:

Standard Deviation of (Lyxor World) = 9.4262

Covariance (Lyxor ChinaH, Lyxor World) = 85.333

Covariance (Lyxor MSIndia, Lyxor World) = 81.875

Covariance (Lyxor USDJI, Lyxor World) = 56.09

β (Lyxor ChinaH) =  = 0.9604

β (Lyxor MSIndia) =  = 0.9215

β (Lyxor USDDJI) =  = 0.6313

β (Lyxor ChinaH, Lyxor MSIndia) = (0.6)(.9604) + (0.4)(0.9215) = 0.9448

β (Lyxor ChinaH, Lyxor MSIndia, Lyxor USDJIA) = (0.4)(0.9604) + (0.3)0.9215)  +  (0.3)(0.6313) = 0.85

Required Return (Lyxor ChinaH, Lyxor MSIndia) = 0.025 + 0.9448(0.055 – 0.025)   = 0.0533

Required Return (Lyxor ChinaH, Lyxor MSIndia, Lyxor USDJIA) =  0.025 + 0.85 (0.055-0.025)  = 0.05049902

answer; dogs;