UPS,a delivery services company,has a beta of 1.1,and Wal-Mart has a beta of 1.0.The risk-free rate of interest is 4% and the market risk premium is 6%.What is the expected return on a portfolio with 50% of its money in UPS and the balance in Wal-Mart?

Question

Quizplus · Accepted Answer

The expected return on a portfolio is calculated using the weighted average of the expected returns of the individual assets. The expected return for each stock is calculated using the CAPM formula: Expected Return = Risk-Free Rate + Beta * Market Risk Premium. For UPS: 4% + 1.1 * 6% = 10.6%. For Wal-Mart: 4% + 1.0 * 6% = 10%. The portfolio return is (0.5 * 10.6%) + (0.5 * 10%) = 10.3%.

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