You have recently become very interested in property. You have gathered some of your friends to buy three small cottages near your university. Since each investment requires the same amount of money. While the cottages cost the same, they are different distances from the university and in different neighbourhoods. You believe that this causes them to have different levels of systematic risk and the betas for each properties are 1.2, 1.3, and 1.5. The risk-free rate is 4% and the market risk return is 10%. 

a) What is the market risk premium? 

b) What is the expected return for each cottages?

c) What is the portfolio's systematic risk? 

d) What is the expected return of your investment portfolio?

Answer rating: 100% (QA)

a The market risk premium is the difference between the market risk return and the riskfree rate In this case the market risk return is 10 and the riskfree rate is 4 Therefore the market risk premium ... View the full answer