Question

Kevin knows that the beta of his portfolio is equal to 1, but he does not know the risk-free rate of return or the market risk premium. He also knows that the expected return on the market is 8.25 percent. What is the expected return on Kevin’s portfolio? (Round answer to 2 decimal places, e.g. 12.25)

expected return: %

Answer 1

As per CAPM,

Expected return of portfolio = Rf+beta(Rm-Rf), substituting beta as 1 and Expected market return to be 8.25%, we get:

Expected return =Rf+1*(8.25%-Rf)

Expected return =Rf+8.25%-Rf

Expected return =8.25%