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Calculate the expected return of your portfolio

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Reference no: EM133145726

Question - Consider the following information on Share A and Share B.

State of the Economy

Probability of the state occurring

Return on A

Return on B

Boom

0.15

30%

6%

Normal

0.63

20%

10%

Recession

0.22

10%

15%

You decide to invest $5,400 in Share A and $3,600 in Share B.

a. Calculate the expected return of your portfolio.

b. If Share A has a beta of 1.25, Share B has a beta of 1.9, calculate the beta of your portfolio.

c. If the risk free rate is expected to be 1.5% and market rate of return is expected to be 11.5%, based on the Capital Asset Pricing Model (CAPM) calculate the expected returns of Share A and Share B.

Reference no: EM133145726

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