A stock has a beta of 1.10, an expected return of 12.11 percent, and lies on the security market line.A risk-free asset is yielding 3.2 percent.You want to create a portfolio valued at $12,000 consisting of Stock A and the risk-free security such that the portfolio beta is .80.What rate of return should you expect to earn on your portfolio?
A)9.68 percent
B)9.16 percent
C)9.33 percent
D)9.41 percent
E)9.56 percent

Question

Quizplus · Accepted Answer

The expected return on the portfolio can be calculated using the Capital Asset Pricing Model (CAPM). The portfolio beta is 0.80, the risk-free rate is 3.2%, and the market risk premium is calculated from the stock's beta and expected return. Using these, the expected return on the portfolio is 9.68%.

A Stock Has a Beta of 1