Question

The expected return on the market is 12%; the risk-free rate is 3%; the beta of your portfolio is 1.17; and the standard deviation of your portfolio is 17%.

Which of the following statements is true?

A. The expected return on your portfolio is 1.17 times 12%

B. The reward to risk ratio for your portfolio is 1.17/0.17.

C. The market risk premium is 9%.

D. There is not enough information to determine the expected return on your portfolio.

Answer 1

Hello Sir/ Mam

STATEMENT C IS TRUE.

Given that:

Expected return on market = 12%

Risk Free rate = 3%

Beta = 1.17

Now,

Now, evaluation of options:

1. Expected Return is 13.53% which is not equal to 14.04%. Hence, FALSE.
2. FALSE
3. Market Risk Premium is 9%. TRUE.
4. FALSE. Expected Return on portfolio is 13.53%

I hope this solves your doubt.

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