Question

You are evaluating two portfolios, A and B. Portfolio A has an expected rate of return of 20% and its beta is 1.4. Portfolio B has an expected rate of return of 25% and its beta is 1.2. If the simple CAPM is valid, are these two portfolios numbers possible?

Name: you are evaluating two portfolios a and b portfolio a has an expected rate of return of 20 and its beta is 14 portfolio b has an expected rate of return of 25 and its beta is 12 if the simpl 73504
Uploaded: 2023-06-07T16:50:58-08:00
Duration: 8 min 40 s
Channel: Akash M
Description: you are evaluating two portfolios a and b portfolio a has an expected rate of return of 20 and its beta is 14 portfolio b has an expected rate of return of 25 and its beta is 12 if the simpl 73504

          You are evaluating two portfolios, A and B. Portfolio A has an expected rate of return of 20% and its beta is 1.4. Portfolio B has an expected rate of return of 25% and its beta is 1.2. If the simple CAPM is valid, are these two portfolios numbers possible?

Added by Kimberly S.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Akash M

06/07/2023

Step 1

The CAPM formula is given by: \[ E(R) = R_f + \beta (E(R_m) - R_f) \] where: - \(E(R)\) is the expected return of the portfolio, - \(R_f\) is the risk-free rate, - \(\beta\) is the beta of the portfolio, - \(E(R_m)\) is the expected return of the market. Show more…

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You are evaluating two portfolios, A and B. Portfolio A has an expected rate of return of 20% and its beta is 1.4. Portfolio B has an expected rate of return of 25% and its beta is 1.2. If the simple CAPM is valid, are these two portfolios numbers possible?