Answer:
11.11%
Explanation:
<em><u>The full question with table is attached.</u></em>
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We need the rate of return formula using Capital Asset Pricing Model (CAPM). The formula is:
![R=R_f+\beta(R_m-R_f)](https://tex.z-dn.net/?f=R%3DR_f%2B%5Cbeta%28R_m-R_f%29)
Where
R is rate of return (what we need)
is risk-free return rate (5% = 0.05)
is the market rate of return (11% = 0.11)
To get
, we take the weighted average of the portfolio.
Weight of Stock A = 1,075,000/3,000,000 = 0.3583
Weight of Stock B = 675,000/3,000,000 = 0.225
Weight of Stock C = 750,000/3,000,000 = 0.25
Weight of Stock D = 500,000/3,000,000 = 0.1667
Portfolio Beta = (0.3583*1.2) + (0.225*0.50) + (0.25*1.40) + (0.1667*0.75) = 1.02
Now, we calculate rate of return using CAPM formula:
![R=R_f+\beta(R_m-R_f)\\R=0.05+1.02(0.11-0.05)\\R=0.1112](https://tex.z-dn.net/?f=R%3DR_f%2B%5Cbeta%28R_m-R_f%29%5C%5CR%3D0.05%2B1.02%280.11-0.05%29%5C%5CR%3D0.1112)
That is 11.12%, or from answer choice, it is <u>11.11%</u>