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?

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.

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