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If the risk free return is 3.2% and the market return is 11.6%?


What is the expected return for the following portfolio? I need an answer in percent with two decimals

Stock Beta Investment
AAA 3.0 $800,000
BBB 2.3 $1,000,000
CCC 1.5 $2,900,000
DDD 0.8 $1,900,000

The formula to use is:
R_p = R_f + beta x (R_m - R_f)

Here
R_p = expected return portfolio
R_f = risk free rate
R_m = expected market return

From the table I calculate beta as
( 3 x 0.8 + 2.3 x 1 + 1.5 x 2.9 + 0.8 x 1.9) / ( 0.8 + 1 + 2.9 + 1.9)
= 1.6

Plugging all numbers in the formula:
R_p = 3.2 + 1.6 x (11.6 - 3.2) = 16.64%

PS Did you notice that in all three answers I used the same formula? It's the key formula for investment. I did something for you, now do something for me: reread the chapter in your book.

Hi, i know what your question means. i also think stock market is a nice place for investing.

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Best Wishes && Good Luck!

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