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What will be the portfolio return

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Reference no: EM132976759

Question - The risk free rate is 4%, and the market risk premium is 6%. Stock A has a beta of 0.5 and standard deviation 10%, Stock B has a beta of 1.2 and standard deviation 20%. Assume that the market is in equilibrium (required return equals to the expected return)

1. What is the required rate of return on each stock?

2. If an investor will invest in only one stock, which one is better based on Sharp ratio?

3. If an investor decides to invest 30% of his wealth in government bond (Risk free), 30% in Stock A and 40% in Stock B, what will be the portfolio's return?

Reference no: EM132976759

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