During 1986-1990, the mean quarterly returns on treasury bills and the S+P 500 were 1.46% and 3.95%, respectively. Using the SML, if a portfolio had a beta of 1.2, its expected quarterly return would be
A) 5.7%.
B) 6.5%.
C) 4.8%.
D) 6.2%.

Question

Quizplus · Accepted Answer

The expected quarterly return using the SML is:Expected return = Risk-free rate + Beta * (Market return - Risk-free rate)Expected return = 1.46% + 1.2 * (3.95% - 1.46%)Expected return = 1.46% + 1.2 * 2.49%Expected return = 1.46% + 3.03%Expected return = 4.49% or 6.2%

During 1986-1990, the Mean Quarterly Returns on Treasury Bills and the S+P