The return on the risk-free asset is 4% and the return on the market is 14% Secu

Question

The return on the risk-free asset is 4% and the return on the market is 14% Security a beta = 1.2 Security b beta = .8
What is the portfolio expected return if you invest 35% in asset A, 45% in B, and 20% in an asset that exactly follows the overall market? The return on the risk-free asset is 4% and the return on the market is 14% Security a beta = 1.2 Security b beta = .8
What is the portfolio expected return if you invest 35% in asset A, 45% in B, and 20% in an asset that exactly follows the overall market? Security a beta = 1.2 Security b beta = .8
What is the portfolio expected return if you invest 35% in asset A, 45% in B, and 20% in an asset that exactly follows the overall market?

Explanation / Answer

p = Wa×a+Wb×b+Wc×c

= 1.2×35%+0.80×45%+1×20%

= 0.98

Expected return on portfolio = Rf+×Rp

Rf is risk free return

Rp is risk premium

= 4%+0.98×(14%-4%)

= 13.8%

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