If the risk-free rate is 6 percent and the market risk premium is 9.5% and below are the details of your portfolio: Security Amount Invested Beta A $50,000,000 0.1 B $60,000,000 0.3 C $40,000,000 0.7 What is the required rate of return of your portfolio? A- 0.34% D-7% C-6% B-9.23%
| a | b | c | d= a+b*c | e | d*e | |
| Stock | Risk free | Beta | Market premium | Expected return | Investment | Portfolio return |
| A | 6% | 0.1 | 9.50% | 6.95% | $ 50,000,000 | $ 3,475,000 |
| B | 6% | 0.3 | 9.50% | 8.85% | $ 60,000,000 | $ 5,310,000 |
| C | 6% | 0.7 | 9.50% | 12.65% | $ 40,000,000 | $ 5,060,000 |
| $ 150,000,000 | $ 13,845,000 | |||||
| Portfolio expected return= | 13845000/150000000 | 9.230% | ||||
Answer is 9.23%
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