The risk-free return is 3.2% and the market return is 11.6%. What is the required rate...

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The risk-free return is 3.2% and the market return is 11.6%. What is the required rate of return for the following portfolio?

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Answer 1

Answer #1

Answer: Option c is correct

We need to first calculate the portfolio beta
Portfolio beta=Summation of (weight of each stock)*(Beta of the stock)
Total portfolio value=800000+1000000+1200000+2000000=5000000

Weight of stock AAA=800000/5000000=0.16
Weight of stock BBB=1000000/5000000=0.2
Weight of stock CCC=1200000/5000000=0.24
Weight of stock DDD=2000000/5000000=0.4

Portfolio beta=(0.16)*(3)+(0.2)*(2.3)+(0.24)*(1.5)+(0.4)*(0.8)=1.62

Required return=Risk free rate + Beta*(Market return-Risk free rate)
=3.2% + 1.62*(11.6%-3.2%)
=0.16808 or 16.81% (Rounded to 2 decimal places)

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Answer 2

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The risk-free return is 3.2% and the market return is 11.6%. What is the required rate...

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