Compute the expected return of the stocks or portfolios

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Consider a CAPM economy. You expect a risk free rate (rf ) of 4% and the market return (rM) of 10%. Compute the expected return of the following stocks or portfolios.

(a) Stock 1: β = 0.85.

(b) Stock 2: β = 1.25.

(c) Portfolio 1: The proportions invested in stock 1, stock 2, and risk free asset are 35%, 35%, and 30%, respectively.

(d) Portfolio 2: The proportions invested in stock 1, stock 2, and risk free asset are 50%, 70%, and -20%, respectively.

Reference no: EM132952865

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