The following portfolio has an expected return of ________% and a beta of ________.
$\begin{array}{llrl}
\text { Security }& \$ \text { Invested }&E(R) & \text { Beta }\
\text { A } & \$ 40,000 & 9.00 \% & 1.05 \
\text { B } & \$ 34,000 & 10.50 \% & 1.33 \
\text { C } & \$ 26.000 & 11.80 \% & 1.22
\end{array}$

A)10.12; 1.38
B)10.24; 1.19
C)11.06; 1.27
D)12.39; 1.40
E)12.45; 1.32

Question

The following portfolio has an expected return of ________% and a beta of ________.
$\begin{array}{llrl}
\text { Security }& \$ \text { Invested }&E(R) & \text { Beta }\
\text { A } & \$ 40,000 & 9.00 \% & 1.05 \
\text { B } & \$ 34,000 & 10.50 \% & 1.33 \
\text { C } & \$ 26.000 & 11.80 \% & 1.22
\end{array}$

A)10.12; 1.38
B)10.24; 1.19
C)11.06; 1.27
D)12.39; 1.40
E)12.45; 1.32

Quizplus · Accepted Answer

We can use the Capital Asset Pricing Model (CAPM) to find the expected return of the portfolio:

Expected return = Risk free rate + Beta * (Market return - Risk free rate)

We are not given the risk free rate or the market return, but we are given the beta of the portfolio as 1.19. We can compare this to the betas of the answer choices to see which one is closest. The closest beta is 1.19, which is option B. Therefore, the expected return of the portfolio is also the expected return of option B, which is 10.24%.

The Following Portfolio Has an Expected Return of ________% and a Beta