Answer:
11.10%
Explanation:
For computing the portfolio required rate of return first we have to calculate the portfolio beta which is shown below:
Portfolio Beta = Beta of Stock A × Weight of Stock A + Beta of Stock B × Weight of Stock B + Beta of Stock C × Weight of Stock C + Beta of Stock D × Weight of Stock D
= 1.50 × $200,000 ÷ ($200,000 + $300,000 + $500,000 + $1,000,000) 0-.50 × $300,000 ÷ ($200,000 + $300,000 + $500,000 + $1,000,000) + 1.25 × $500,000 ÷ ($200,000 + $300,000 + $500,000 + $1,000,000) + 0.75 × $1,000,000 ÷ ($200,000 + $300,000 + $500,000 + $1,000,000)
= .7625
Now the portfolio Required Rate of Return is
Required Rate of Return = Risk Free Rate + Beta × (Market Rate of Return - Risk Free Rate)
= 5% + .7625 × (13% - 5%)
= 11.10%
We simply applied the above formulas
