Currently, the risk-free rate is 5 percent and the market risk premium is 6 percent. You have your money invested in three assets: an index fund that has a beta of 1.0, a risk-free security that has a beta of 0, and an international fund that has a beta of 1.5. You want to have 20 percent of your portfolio invested in the risk-free asset, and you want your overall portfolio to have an expected return of 11 percent. What portion of your overall portfolio should you invest in the international fund?
By CAPM model, the security's expected return is calculated by:
R = Rf+Beta*(Rm-Rf)
So, for ...
Using the CAPM model, the solution shows all the calculations to arrive at the correct answer.