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What must be the beta of a portfolio with E(rP) = 20%, if rf = 5%...

What must be the beta of a portfolio with E(rP) = 20%, if rf = 5% and E(rM) = 15%?

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Answer #1

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As per CAPM
Required rate = Risk free rate + (Market rate - risk free rate)*beta
Given that
Risk free rate 5%
market rate 15%
required rate 20%
Putting these value in equation we can find Beta
20% = 5%+(15%-5%)*Beta
Beta = 15%/10%
Beta =          1.50
Therefore Beta =          1.50
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