Question

    Calculate the expected rate of return on the entire

    portfolio, if the risk-free rate is 6% and the expected rate of return on market portfolio is 15%.
    A 12.25% Correct Answer Incorrect Answer
    B 12.56% Correct Answer Incorrect Answer
    C 12.75% Correct Answer Incorrect Answer
    D 13.56% Correct Answer Incorrect Answer

    Solution

    Here the CAPM model is used to estimate the return of the portfolio. Return of portfolio = Risk free rate + Portfolio Beta (Market return – Risk free rate) First we need to calculate the portfolio beta as weighted average: Now calculating return of portfolio = Risk free rate + Portfolio Beta (Market return – Risk free rate)                                          = 6% + 0.84 (15%-6%)                                          = 13.56%

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