UPS,a delivery services company,has a beta of 1.5,and Wal-Mart has a beta of 0.9.The risk-free rate of interest is 4% and the market risk premium is 7%.What is the expected return on a portfolio with 30% of its money in UPS and the balance in Wal-Mart?

Question

Quizplus · Accepted Answer

The expected return on the portfolio is calculated using the Capital Asset Pricing Model (CAPM) for each stock and then finding the weighted average. For UPS: Expected return = 4% + 1.5 * 7% = 14.5%. For Wal-Mart: Expected return = 4% + 0.9 * 7% = 10.3%. Portfolio return = 0.3 * 14.5% + 0.7 * 10.3% = 11.56%.

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