What is the expected yield on the market portfolio at a time when Treasury bills yield 6% and a stock with a Beta of 1.4 is expected to yield 18%?
A)8.6%
B)10.8%
C)12.0%
D)14.6%

Question

Quizplus · Accepted Answer

The expected yield on the market portfolio can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Given a stock with a Beta of 1.4 is expected to yield 18% and Treasury bills (risk-free rate) yield 6%, we can set up the equation as 18% = 6% + 1.4 * (Market Return - 6%). Solving for the Market Return gives us 14.6%.

What Is the Expected Yield on the Market Portfolio at a Time