In: Finance
Beta of Assets A, B, C, and D are 1.2, 1.8, 2.4, and 0.8 respectively. You form a portfolio with equal weights on A, B, C, and D. The risk-free rate is 2%, and the expected return of the market portfolio is 10%. Find out the expected return of your portfolio according to the CAPM.
Group of answer choices
12%
12.4%
18.2%
17.5%
14.4.%
Ans 14.4.%
Stock | INVESTMENT (i) | Beta (ii) | Investment* Beta (i)* (ii) |
A | 25% | 1.20 | 0.30 |
B | 25% | 1.80 | 0.45 |
C | 25% | 2.40 | 0.60 |
D | 25% | 0.80 | 0.20 |
Total | 100% | 1.55 | |
Required Return = | Risk free Return + (Market Return - Risk free return)* Beta | ||
Required Return = | 2% + (10% - 2%)*1.55 | ||
Required Return = | 14.4% |