What is the expected return for a portfolio with a beta of 0.5?
A) 5%
B) 7.5%
C) 12.5%
D) 15%

Question

Quizplus · Accepted Answer

The expected return of a portfolio is given by the following formula:
Expected return = Risk-free rate + (beta x Market risk premium)
Given that the beta is 0.5, we can assume a market risk premium of around 5-6% (historically). Let's assume a risk-free rate of 2%. Using the formula above, we get:
Expected return = 2% + (0.5 x 5%) = 7.5%
Therefore, the best choice is B) 7.5%.

What Is the Expected Return for a Portfolio with a Beta