An investor put 40% of her money in Stock A and 60% in Stock B.Stock A has a beta of 1.2 and Stock B has a beta of 1.6.If the risk-free rate is 5% and the expected return on the market is 12%,what's the investor's expected return?

Question

Quizplus · Accepted Answer

Expected return (stock A)= 5% + 1.2(12%-5%)= 13.4%
Expected return (stock B)= 5% + 1.6(12%-5%)= 16.2%
Portfolio expected return = .4(13.4%)+ .6(16.2%)= 15.08%

An Investor Put 40% of Her Money in Stock a and 60