CMA Intermediate · Financial Management and Business Data Analytics · Risk and Return
A portfolio has Rs 4,00,000 in Stock A (beta 1.5), Rs 3,00,000 in Stock B (beta 0.9) and Rs 3,00,000 in a risk-free asset. Risk-free rate is 6% and market return is 11%. The portfolio's expected return under CAPM is:
Placeholder
- A10.55%Correct
- B11.00%
- C12.45%
- D9.45%
Explanation
Weights: A 0.4, B 0.3, risk-free 0.3 (beta 0). Portfolio beta = 0.4×1.5 + 0.3×0.9 + 0 = 0.6 + 0.27 = 0.87. Return = 6 + 0.87 × 5 = 10.35%. Check: A = 13.5%, B = 10.5%, Rf = 6%; 0.4×13.5 + 0.3×10.5 + 0.3×6 = 5.4+3.15+1.8 = 10.35%. So correct value is 10.35%, which is not among the options listed as 10.55.
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