UPS, a delivery services company, has a beta of 1.1, and Wal-Mart has a beta of 0.7. The risk-free rate of interest is 4% and th

Question

2 years ago

14

e market risk premium is 7%. What is the expected return on a portfolio with 30% of its money in UPS and the balance in Wal-Mart

1 answer:

Brrunno [24] · Answer 1 · 2023-01-01T11:11:17+03:00

Answer:

7.78%

Explanation:

Calculation for the expected return on a portfolio

First step is to calculate the portfolio beta

Portfolio beta=30%*1.1+30%*0.7=1.15

Portfolio beta=0.33+0.21

Portfolio beta=0.54

Now let calculate the expected return using this formula

Expected return=rf+(Portfolio beta*mrp)

Let plug in the formula

Expected return=4%+(0.54*7%)

Expected return=7.78%

Therefore the expected return on a portfolio is 7.78%