Use the table for the question(s)below.
Consider the following three individuals' portfolios consisting of investments in four stocks:
-Assuming that the risk-free rate is 4% and the expected return on the market is 12%,then the required return on Paul's portfolio is closest to:
A)20%.
B)22%.
C)18%.
D)16%.

Question

Use the table for the question(s)below.
Consider the following three individuals' portfolios consisting of investments in four stocks: 
-Assuming that the risk-free rate is 4% and the expected return on the market is 12%,then the required return on Paul's portfolio is closest to:
A)20%. 
B)22%. 
C)18%. 
D)16%.

Quizplus · Accepted Answer

The required return on Paul's portfolio can be calculated using the Capital Asset Pricing Model (CAPM):Required return = Risk-free rate + Beta * (Expected market return - Risk-free rate)Given that the risk-free rate is 4%, the expected return on the market is 12%, and Paul's portfolio has a beta of 1, the required return on his portfolio is:Required return = 4% + 1 * (12% - 4%) = 18%

Use the Table for the Question(s)below