You own a portfolio consisting of the following stocks:

Stock Percentage of portfolio Beta Expected return
1 20% 1.00 16%
2 30% 0.85 14%
3 15% 1.20 20%
4 25% 0.60 12%
5 10% 1.60 24%

The risk-free rate is 4 percent. Also, the expected return on the market portfolio is 10 percent.

a. Calculate the expected return of your portfolio.
b. Calculate the portfolio beta.
c. Given the preceding information, plot the security market line on paper. Plot the stocks from your portfolio on your graph.
d. From your plot in part c, which stocks appear to be your winners and which ones appear to be losers?
e. Why should you consider your conclusion in part d to be less than certain?