UPS,a delivery services company,has a beta of 1.2,and Wal-Mart has a beta of 0.8.The risk-free rate of interest is 4% and the market risk premium is 7%.What is the expected return on a portfolio with 40% of its money in UPS and the balance in Wal-Mart?

Question

Quizplus · Accepted Answer

To calculate the expected return on the portfolio, we need to use the formula:

Expected return = Risk-free rate + Beta *(Market risk premium)

For UPS, the expected return is:

Expected return for UPS = 4% + 1.2*7% = 12.4%

For Wal-Mart, the expected return is:

Expected return for Wal-Mart = 4% + 0.8*7% = 9.6%

Now, using the weights of the portfolio, we can calculate the expected return:

Expected return on portfolio = 0.4*Expected return for UPS + 0.6*Expected return for Wal-Mart

Expected return on portfolio = 0.4*12.4% + 0.6*9.6% = 10.72%

Therefore, the answer is C, 10.72%.

UPS,a Delivery Services Company,has a Beta of 1