Question

what is the expected return of your portfolio if you own 610 shares of shark, which are priced at $21.00 each and have a beta of 1.97, and 575 shares of rhino, which are priced at $17.00 each and have a beta of 1.35, and if the expected return on the market is 13.00%, inflation is 1.00%, and the risk-free return 4.00%?(round the value to 100th decimal and please enter the value only without converting it to a decimal format. if the answer is 8.55%, enter 8.55)

Answer 1

The expected return of the portfolio is approximately 19.02%.

Step-by-step explanation:

To calculate the expected return of a portfolio, we need to consider the weights and expected returns of each asset in the portfolio. In this case, we have shares of Shark and Rhino.

First, calculate the total investment in Shark: 610 shares x $21.00 = $12,810.

Then, calculate the total investment in Rhino: 575 shares x $17.00 = $9,775.

Next, calculate the weighted average beta: (610/1185) x 1.97 + (575/1185) x 1.35 = 1.651.

Finally, calculate the expected return: Risk-free rate + (Beta x (Expected return on market - Risk-free rate))

= 4.00% + (1.651 x (13.00% - 4.00%))

= 4.00% + 15.0159%

= 19.0159%.

Therefore, the expected return of the portfolio is approximately 19.02%.