Share
Explore BrainMass

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

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 12000 1.4
Stock D 13000 1.9

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

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

Solution Preview

the beta of the portfolio (Beta_p)

Total Invest = $15,000 + $10,000 + $12000 + $13,000 = $50,000

Weight of Stock A = $10,000 / $50,000 = 0.2
Weight of Stock B = $15,000 / $50,000 = 0.3
Weight of Stock C = $12,000 / ...

Solution Summary

Capital-asset-pricing and expected return are investigated. The solution is detailed and well presented. The response was given a rating of "5/5" by the student who originally posted the question.

$2.19