Your portfolio consists of the following investment in stock with corresponding beta: · P200,000 in a 0.8 beta stock · P100,000 in a 1 beta stock · P100,000 in a 1.2 beta stock Last year, the required rate of return of this portfolio is 20%. The quoted risk-free rate on the short-term government issued security is 5%. This year the only change noted is the increased by 1% on the market risk premium. What is the current required rate of return of this portfolio

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A: The real rate of return can be calculated as per CAPM equation

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A: Step 1:Certainly! The standard deviation of a portfolio is a measure of the total risk of that…

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A: As per formula Required rate of return = RF+(B*RP) Where RF - Risk free rate i.e. 2% RP - Risk…

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A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

Q: he real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be…

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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.