A stock has a beta of 1.3 and an expected return of 12.8 percent. a risk-free asset currently earns 4.3 percent.

1 answer:

6 0

The expected return on this portfolio will be given by:
E[P]=Rf+(E[Rm]-Rf)β
Where:
Rf=Risk Free interest rate
Rm=Return on the market portfolio
β= Market Beta
The return on our portfolio will be:
E[p]=0.043+(0.128-0.043)0.013
=0.043+0.085*0.013
=0.044105
=4.4105%

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