The risk free rate is 4%, and the expected return on the market is 12%. What is the required return on portfolio consisting of 30% of an asset with a beta of 1.5 and the rest in an asset with no risk?
A) 7.6%
B) 8.8%
C) 12.4%
D) 10.3%
E) 9.1%
return of risky asset = risk free rate + (market return -risk free rate)*beta
= 4%+(12%-4%)*1.5
= 16%
required return on portfolio = Weight of risky Asset * return of asset + Weight of risk free asset* return of risk free asset
= 30%*16%+(100%-30%)*4%
= 7.6%
Answer = A) 7.6%
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