What is the expected return of the three-stock portfolio described below? Common Stock Market Value Expected Return Xerox 125,000 8% Yelcon 250,000 25% Zwiebal 175,000 16%
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.
QUESTION 10
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What is the expected return of the three-stock portfolio described below?
Common Stock
Market Value
Expected Return
Xerox
125,000
8%
Yelcon
250,000
25%
Zwiebal
175,000
16%
a. 16.45%b. 12.72%c. 18.27%d. 14.33%e. 16.33%
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