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

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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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