Question

The risk free rate is 4%, and the expected return on the market is 12%. What is the required return on portfolio consisting of 30% of an asset with a beta of 1.5 and the rest in an asset with no risk?

A) 7.6%

B) 8.8%

C) 12.4%

D) 10.3%

E) 9.1%

Answer 1

return of risky asset = risk free rate + (market return -risk free rate)*beta

= 4%+(12%-4%)*1.5

= 16%

required return on portfolio = Weight of risky Asset * return of asset + Weight of risk free asset* return of risk free asset

= 30%*16%+(100%-30%)*4%

= 7.6%

Answer = A) 7.6%