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25 August, 05:19

UPS, a delivery services company, has a beta of 1.4, and Wal-Mart has a beta of 0.9. The risk-free rate of interest is 4% and the market risk premium is 6%. What is the expected return on a portfolio with 50% of its money in UPS and the balance in Wal-Mart? Group of answer choices

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  1. 25 August, 06:42
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    10.9%

    Explanation:

    to calculate the expected return of the portfolio, we first need to calculate the portfolio's beta:

    the portfolio beta = (beta UPS stock x weight UPS stock) + (beta Walmart stock x weight Walmart) = (1.4 x 50%) + (0.9 x 50%) = 0.7 + 0.45 = 1.15

    portfolio's expected return = risk free rate + (portfolio beta x market risk premium) = 4% + (1.15 x 6%) = 4% + 6.9% = 10.9%
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