Share
Explore BrainMass

Capital-asset-pricing model

Suppose you have invested $50,000 in the following four stocks:

Security Amount Invested Beta
Stock A $10,000 0.7
Stock B 15,000 1.2
Stock C 12,000 1.4
Stock D 13,000 1.9

The risk-free rate is 5 percent and the expected return on the market portfolio is 18 percent.

Based on the capital-asset-pricing model, what is the expected return on the above
portfolio?

Solution Preview

Amount Beta Proportion Product
$10,000 0.7 0.2 0.14
$15,000 1.2 0.3 0.36
$12,000 ...

Solution Summary

This discusses the capital-asset-pricing model and calcualtion of cost of equity

$2.19