Please show all work and formula: Please use the information on the table below to answer...

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Finance

Please show all work and formula:
Please use the information on the table below to answer thisquestion.
Security                      ActualReturn            Beta
A                                12%                            1.2
B                                 10%                            1.0
C                                 14%                            1.4
Assume the risk-free interest rate is 1% and the market riskpremium is 5.5%. An investor would like to invest $40,000 inSecurity A, $25,000 in security B and $50,000 in Security C. Findthe portfolio’s expected return.
Find the portfolio’s actual return.
Based on your answers to a and b, is the portfolio’s returnhigher or lower than required? How should prices react?

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4.2 Ratings (503 Votes)

Expected returns Stock A As per CAPM expected return riskfree rate beta Market risk premium Expected return 1 12 55 Expected return 76 Stock B As per CAPM expected return riskfree rate beta Market risk premium Expected return 1 1 55 Expected return 65 Stock C As per CAPM expected return riskfree rate beta See Answer

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