Exhibit 7-6
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Jonathan Crowley is a portfolio manager for a large pension fund. Last year his portfolio had an actual return of 12.6% with a standard deviation of 13% and a beta of 1.3. The market risk premium for this period of time was 6% and the risk-free rate of return was 5%.
-Refer to Exhibit 7-6. Based on the Capital Asset Pricing Model (CAPM), what is the required rate of return for this portfolio?
A) 6.3%
B) 7.8%
C) 10.6%
D) 12.8%
E) 15.4%

Question

Quizplus · Accepted Answer

The required return for this portfolio on a risk adjusted is calculated using the CAPM as follows: 0.05 + 1.3(0.06) = 0.128.

Exhibit 7-6 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)