# Rate of return

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 25 percent and a standard deviation of 4%. The risk-free rate is 5%, and the expected return on the market portfolio is 20%. Assume the capital-asset-pricing model holds. What expected rate of return would a security earn if it had a 0.5 correlation with the market portfolio and a standard deviation of 2%?

© BrainMass Inc. brainmass.com June 3, 2020, 6:52 pm ad1c9bdddfhttps://brainmass.com/business/modified-internal-rate-of-return/rate-of-return-77394

#### Solution Preview

Rp = 25%

Sp = 0.04

Rf = 5%

Rm = 20%

Correlation coefficient is r = 0.5

Std. dev. of security is Ss = 0.02 ...

#### Solution Summary

This shows how to determine expected rate of return for a given situation.

$2.19