UPS, a delivery services company, has a beta of 1.4, and Wal-Mart has a beta of 0.9. 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

A) Compute portfolio beta by multiplying weight of each stock by its beta.
Use CAPM to compute expected return of the portfolio.
(0.5 × 1.4) + (0.5 × 0.9)= 1.15; 4% + (1.15 × 6%) = 10.9%

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