Final answer:
To find the beta for a portfolio with an expected rate of return of 18%, use the formula: Beta = (Expected Rate of Return - Risk-Free Rate) / (Expected Rate of Return on the Market Portfolio - Risk-Free Rate). Given the values, the beta is 2.
Step-by-step explanation:
To find the beta for a portfolio with an expected rate of return of 18%, we need to use the formula:
Beta = (Expected Rate of Return - Risk-Free Rate) / (Expected Rate of Return on the Market Portfolio - Risk-Free Rate)
Given that the expected rate of return on the market portfolio is 11% and the risk-free rate is 4%, we can plug in these values into the formula:
Beta = (0.18 - 0.04) / (0.11 - 0.04) = 0.14/0.07 = 2