Suppose Woolworths has a beta of 0.51 and Qantas has a beta of 1.78. The risk- free interest rate is 2.20% and the market risk premium is 5.20%. According to the CAPM, what is the expected return on a portfolio that borrowed 38% of its value at the risk free rate and invested 33% in Woolworths, 39% in Qantas, and the remainder in a market security (a diversified portfolio with systematic risk equivalent to the market)? Report your answer as a decimal to four decimal places.
Suppose Woolworths has a beta of 0.51 and Qantas has a beta of 1.78. The risk- free interest rate is 2.20% and the market risk premium is 5.20%. According to the CAPM, what is the expected return on a portfolio that borrowed 38% of its value at the risk free rate and invested 33% in Woolworths, 39% in Qantas, and the remainder in a market security (a diversified portfolio with systematic risk equivalent to the market)? Report your answer as a decimal to four decimal places.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Suppose Woolworths has a beta of 0.51 and Qantas has a beta of 1.78. The risk-
free interest rate is 2.20% and the market risk premium is 5.20%. According to the
CAPM, what is the expected return on a portfolio that borrowed 38% of its value at
the risk free rate and invested 33% in Woolworths, 39% in Qantas, and the
remainder in a market security (a diversified portfolio with systematic risk
equivalent to the market)?
Report your answer as a decimal to four decimal places.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4a1e25a2-f5e8-468f-ae64-00ba734492bc%2Ffebfde03-b7b5-4b1f-a85e-d6cdcc3a38a0%2Fs2jtcge_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose Woolworths has a beta of 0.51 and Qantas has a beta of 1.78. The risk-
free interest rate is 2.20% and the market risk premium is 5.20%. According to the
CAPM, what is the expected return on a portfolio that borrowed 38% of its value at
the risk free rate and invested 33% in Woolworths, 39% in Qantas, and the
remainder in a market security (a diversified portfolio with systematic risk
equivalent to the market)?
Report your answer as a decimal to four decimal places.
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