You are holding a portfolio with the following investments and betas: Stock Dollar investment Beta A $250,000 1.30 B 200,000 1.70 C 400,000 0.75 D 150,000 -0.30 Total investment $1,000,000 The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
You are holding a portfolio with the following investments and betas:
| Stock | Dollar investment | Beta | ||
| A | $250,000 | 1.30 | ||
| B | 200,000 | 1.70 | ||
| C | 400,000 | 0.75 | ||
| D | 150,000 | -0.30 | ||
| Total investment | $1,000,000 |
The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places.
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