Consider a portfolio consisting of 2 assets, a share with a beta of 0.9 and market...

Consider a portfolio consisting of 2 assets, a share with a beta of 0.9 and market risk premium of 15%, and a risk-free asset with an expected return of 4%. If the portfolio weighting is 40% of shares and 60% of the risk-free asset what is the expected return on the portfolio?

a. 10.6%

b. 9.4%

c. 8.4%

d. 7.69%

Solutions

Expert Solution

Expected rate on share=risk free rate+Beta*market risk premium

=4+(0.9*15)

=17.5%

Expected return on risk free rate=4%[Beta of risk free assets=0]

Portfolio return=Respective return*Respective weight

=(0.4*17.5)+(0.6*4)

=9.4%

jeff jeffy answered 2 years ago

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