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what is the expected return on the above portfolio

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Suppose you have invested $50,000 in the following four stocks:
Security Amount Invested Beta
Stock A $10,000 0.7
Stock B $15,000 1.2
Stock C $12,000 1.4
Stock D $13,000 1.9

The risk-free rate is 5 % and the expected return on the market portfolio is 18%.

Based on the capital-asset-pricing model, what is the expected return on the above portfolio?

**Show response in EXCEL with formulas

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Solution Preview

Hi there,

Please see the attached Excel spreadsheet with your answers. Also, for your reference, here is some information for you regarding the CAPM model:

The CAPM model is a model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.

The general idea behind CAPM is that investors need to be ...