You hold the positions in the following table. If you expect the market to earn 10 percent and the risk-free rate is 3 percent, what is the required return of the portfolio?
A)14.83 percent
B)15.81 percent
C)28.67 percent
D)32.83 percent

Question

You hold the positions in the following table. If you expect the market to earn 10 percent and the risk-free rate is 3 percent, what is the required return of the portfolio? 
A)14.83 percent 
B)15.81 percent 
C)28.67 percent 
D)32.83 percent

Quizplus · Accepted Answer

To calculate the required return of the portfolio, we use the formula:
Required Return = Risk-free rate + Beta * (Market return - Risk-free rate)
For the given positions, the portfolio's beta can be calculated as:
Beta = (0.3 * 1.2) + (0.5 * 0.9) + (0.2 * 1.5) = 0.99
So, the required return of the portfolio is:
Required Return = 3% + 0.99 * (10% - 3%) = 14.83% 
Therefore, the answer is choice A.

You Hold the Positions in the Following Table