Quiz: Portfolio Return with a 3-Asset Portfolio

CAPM

Remember that to use CAPM to calculate the return of a portfolio, you can use the following formula:

$r_p = \sum_i^nw_i(r_f + \beta_i(r_m - r_f))$

and the $\beta$ of the portfolio equals:

$\beta_p = \sum_i^nw_i\beta_i$

What is the return and the beta of a 3 stock portfolio with the following information:
$r_f = 2\%,\; r_m = 10\%,\; \beta_A = 1.2,\; \beta_B = 1.8,\; \beta_C = 0.5,\; w_A = 0.4,\; w_B = 0.4,\; w_C = 0.2$

$r_p = 0.124,\; \beta_p = 1.3$

$r_p = 0.136,\; \beta_p = 1.4$

$r_p = 0.103,\; \beta_p = 1.04$

$r_p = 0.105,\; \beta_p = 1.06$

SOLUTION:

r_p = 0.124,\; \beta_p = 1.3

Next Concept