You are considering investing your money in two stocks (A and B). The risk-free interest rate amounts to 3%. The total return on the market portfolio is 10%.

a) Calculate the expected return on the following two shares with specified beta values. Share Beta Expected return A 0.3 B 1.2

b) You form a portfolio of shares A and B. Assume that you weight the proportion of the shares in the portfolio (A = 7% and B = 30%). Calculate the total return on the portfolio

Answer rating: 100% (QA)

a To calculate the expected return on shares A and B we can use the Capital Asset Pricing Model CAPM ... View the full answer