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# Calculating expected rate of return

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You are considering investing in a portfolio of the common stocks of four publicly-traded companies with betas as follows:

ABC - 0.7
DEF - 0.9
GHI - 1.3
JKL - 1.9

If the risk-free rate is 4.5% and the market rate is 8.5%, what is your expected rate of return of following stocks?

a. ABC?
b. DEF?
c. GHI?
d. JKL?
e. If your portfolio is 20% in ABC, 30% in DEF, 30% in GHI, and 20% in JKL, what is your portfolio (weighted average) expected rate of return?

#### Solution Preview

Problem: If the risk-free rate is 4.5% and the market rate is 8.5%, what is your expected rate of return of following stocks?

Solution:

a. ABC?
Expected return=risk free rate+ beta*(market rate-risk free rate)
=4%+0.7*(8.5%-4.5%)
...

#### Solution Summary

The following solution describes the steps for calculating expected rate of return on given stocks. It also calculates expected return from a portfolio consisting of these stocks. Step by step calculations are given for each problem.

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