Question
Assume the risk-free rate (r RF ) is 4 percent and the required return on the market portfolio (r M ) is 10% plus the
Assume the risk-free rate (rRF) is 4 percent and the required return on the market portfolio (rM) is 10% plus the last one digit of your PSU ID number. Please write your PSU ID number at the first line of your answer.
Stock | Amount invested | Beta () | Expected Return |
1 | $40,000 | 1.00 | 12% |
2 | $25,000 | 0.75 | 13% |
3 | $25,000 | 1.50 | 15% |
Part a, Find the expected return for the portfolio. Hint: Expected return is a weighted average return. (5 points)
Part b, Using the same information above, find the beta for the portfolio. Hint: Portfolio beta is a weighted average beta (5 points)
Part c. Using the same information above, find the required rate of return for the portfolio. Hint: the required rate of return of a stock based portfolio is based on
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