# Using capital-asset-pricing model what is the expected return of a portfolio

Please detail calculations so that they can be posted into an excel spreadsheet and please explain how the calculations were devised.

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?

https://brainmass.com/business/capital-asset-pricing-model/using-capital-asset-pricing-model-what-is-the-expected-return-of-a-portfolio-60192

#### Solution Preview

According to the capital asset pricing model (CAPM), the expected return of a security (or portfolio) should follow this relationship:

E(r) = rf + beta*( E(rm) - rf)

where:

E(r) is the expected return of the security or portfolio

rf is the risk-free rate of return (in this case, 0.05)

E(rm) is the expected return of the market portfolio (in this case, ...

#### Solution Summary

The solution shows the formulas needed to calculate the answer to the question, and then applies the formulas for an answer.