# Expected Return and Stock Portfolios

(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%.

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?Â

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.