Beta of Assets A, B, C, and D are 1.2, 1.8, 2.4, and 0.8 respectively. You...

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.%

Expert Solution

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%

jeff jeffy answered 2 years ago

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