Question
You have a portfolio that consists of 20% Stock A, 25% Stock B, 25% Stock C, and 30% Stock D. Stock As covariance with the
You have a portfolio that consists of 20% Stock A, 25% Stock B, 25% Stock C, and 30% Stock D. Stock As covariance with the market portfolio is 0.084, Stock Bs covariance with the market is 0.043, Stock Cs covariance with the market is 0.075, and Stock Ds covariance with the market is 0.069. Treasury bills (the risk free asset) currently offer a return of 3%, and the market risk premium is 8%. The standard deviation of the market is 18.2%. Use the CAPM to estimate the expected return of each stock. What is the beta of your portfolio? What is the expected return of your portfolio according to the CAPM?
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