Question: use the information on the table below to answer this question. Security Actual Return Beta A 12% 1.2 B 10% 1.0 C 14% 1.4 Assume


 use the information on the table below to answer this question.

Security                       Actual Return             Beta

A                                 12%                             1.2

B                                  10%                             1.0

C                                  14%                             1.4

  2. Assume the risk-free interest rate is 1% and the market risk premium is 5.5%. An investor would like to invest $40,000 in Security A, $25,000 in security B and $50,000 in Security C. Find the portfolio’s expected return.
  4. Find the portfolio’s actual return.
  6. Based on your answers to a and b, is the portfolio’s return higher or lower than required? How should prices react?


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