Mrs Gomez has a portfolio with an expected return of 7%. The portfolio is evenly invested...

Question

Question

Answer 1

Answer #1

As per CAPM, expected return = risk free rate + beta*(market return – risk free return)

7% = 4%+beta*(12%-4%)

Beta = 0.375

Portfolio beta is equal to weighted average beta

Beta of risk free asset is 0

Hence, 0.375 = 0.5*Stock beta + 0*Risk free beta

Hence, stock beta = 0.75

Hence, the answer is B.

Answer 2

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