Concept of beta and the risk trade off

Reference no: EM1376345

If beta of portfolio is .326, the present (%) yield to maturity on United States government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, using the CAPM equation,what is the present 'cost of equity' of my company? And what is the meaning of the 'cost of equity?' How would a 3-stock portfolio hold up with a beta of .326? Can it be diversified? Please explain, including the concept of beta and the risk/return trade off to eliminate my confusion.

Reference no: EM1376345

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