Answer:
6.6%
Explanation:
For computing the required rate of return, first we have to determine the weights of stock A and stock B and portfolio beta which is shown below:
Stock A weighatge = Invested amount ÷ total amount
= $50,000 ÷ $75,000
= 0.66667
Stock B weighatge = Invested amount ÷ total amount
= $25,000 ÷ $75,000
= 0.333333
Total amount = $50,000 + $25,000 = $75,000
Now multiply the weighatge into its beta
= Stock A weighatge × stock A beta + Stock B weighatge × stock B beta
= 0.66667 × 1.50 + 0.333333 × 0.90
= 1 + 0.30
= 1.30
Now the required rate of return would be
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
= 4% + 1.30 × (6% - 4%)
= 4% + 1.30 × 2%
= 4% + 2.6%
= 6.6%
