Beta = Correlation x (Variance of Z)^0.5 / (Variance of Market)^0.5
Beta = 0.18 x (0.3185)^0.5 / (0.0282)^0.5
Beta = 0.604927
CAPM equation:
Expected return = Risk free rate + Beta x (Market return - Risk free rate)
Expected return = 3.2% + 0.604927 x (9.9% - 3.2%)
Expected return = 7.25% is the answer.
Portfolio return refers to the return or loss realized on an investment portfolio that includes multiple types of investments. The portfolio is intended to provide returns based on the defined objectives of the investment strategy and the risk tolerance of the type of investor covered by the portfolio.
The basic formula for expected return is to multiply the weight of each asset in the portfolio by the expected return and then add up all these numbers. In other words, the expected return of a portfolio is a weighted average of the returns of the individual components.
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