A share has a beta of 1.04, an expected return of 12.42%, and lies on the security market line. A risk-free asset is yielding 2.4%. You want to create a $2000 portfolio consisting of Share A and the risk-free security such that the portfolio beta is 0.84. What rate of return should you expect to earn on your portfolio? Select one: a. 10.33% b. 11.50% c. 11.16% d. 10.25% e. 10.49%
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
A share has a beta of 1.04, an expected return of 12.42%, and lies on the security market line. A risk-free asset is yielding 2.4%. You want to create a $2000 portfolio consisting of Share A and the risk-free security such that the portfolio beta is 0.84. What
Select one:
a.
10.33%
b.
11.50%
c.
11.16%
d.
10.25%
e.
10.49%
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