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): Expected return on stock = Risk-free rate + Beta * (Market return - Risk-free rate). Rearranging to find the market return: 18% = 6% + 1.4 * (Market return - 6%). Solving for the market return gives 14.6%.

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