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    Expected Return and Stock Portfolios

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    (1) The risk-free rate of return is currently 5 percent, whereas the market risk premium is 11 percent. If the beta of Briar Tek's stock is 2, then what is the expected return on Briar Tek?

    (2) A stock portfolio is equally allocated among Stock A, B, and C. Stocks A, B, and C have betas of 1.9, 1, and 0.57, respectively. The market has just risen 4%. What would you expect to happen to this stock portfolio?

    A. The stock portfolio will rise 3.8%.
    B. The stock portfolio will rise 4%.
    C. The stock portfolio will rise 4.6%.
    D. The stock portfolio will rise 5%.

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    https://brainmass.com/economics/finance/expected-return-stock-portfolio-value-464723

    Solution Preview

    (1) The risk-free rate of return is currently 5 percent, whereas the market risk premium is 11 percent. If the beta of Briar Tek's stock is 2, then what is the expected return on Briar Tek? 

    Expected ...

    Solution Summary

    This solution explains how to compute the expected return based on the risk-free rate of return and the market risk premium, and how to estimating the percentage increase in value of a stock portfolio based on the held stocks' betas and the percentage of general market increase.

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