Based on current dividend yields and expected capital gains, the expected rates of return on portfolios...

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Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 1

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Answer 1

Answer #1

Portfolio A =Expected Return -(Risk Free Rate+Beta*(Market Return-Risk Free Rate)) =12%-(5%+0.7*(13%-5%))=1.40%
Portfolio B =Expected Return -(Risk Free Rate+Beta*(Market Return-Risk Free Rate)) =16%-(5%+1.4*(13%-5%))=-0.20%

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