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Risk-free rate- expected rate of return for stocks

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You are considering investing in a portfolio of the common stocks of four publicly-traded companies with betas as follows:

ABC - 0.7
DEF - 0.9
GHI - 1.3
JKL - 1.9

If the risk-free rate is 4.5% and the market rate is 8.5%, what is your expected rate of return of following stocks :

a. ABC?
b. DEF?
c. GHI?
d. JKL?
e. If your portfolio is 20% in ABC, 30% in DEF, 30% in GHI, and 20% in JKL, what is your portfolio (weighted average) expected rate of return?

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Solution Summary

The solution examines risk-free rates and the expected rate of return for stocks.

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You are considering investing in a portfolio of the common stocks of four publicly-traded companies with betas as follows:

ABC: 0.7

DEF: 0.9

GHI: 1.3

JKL: 1.9 ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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