Questions 21-27 are based on the following information.
Three friends, Tom and Josh, are discussing their investments.
- Tom has a total of $50,000 available for investment, and decides to invest in an efficient portfolio. He first borrows another $20,000 and invests a total of $70,000 in the market portfolio.
- Josh has invested $30,000 in Norman Harvey Holdings Ltd and $20,000 in BJ Hi-Fi Ltd.
The correlation between Norman Harvey and BJ Hi-Fi is 0.7.
The following table shows the expected return, standard deviation and beta of Josh's stocks, the market portfolio and the risk-free asset.
Asset
Exp Return
Std Dev
Beta
Norman Harvey Holdings Ltd
18.1%
15.3%
1.3
BJ Hi-Fi Ltd
12.2%
9.9%
0.85
Market portfolio
7.7%
9.2%
1
Risk-free asset
2.8%
0%
0
What is the expected return on Tom's portfolio?