Question

What must be the beta of a portfolio with e(rp) = 13.75%, if rf = 6% and e(rm) = 11%? (round your answer to 2 decimal places.) beta of portfolio?

Answer 1

beta of portfolio is 1.55

Step-by-step explanation:

First we calculate the Equity Risk Premium, given as:

Equity Risk Premium = Market Return - Risk Free Rate

= 11 - 6 = 5%

Given that;

Risk Free Rate = 6%

Return on Stock = 13.75%

Second, we calculate the Return on Stock

Return on stock = Risk-free rate + Equity risk premium * Beta for stock

`13.75 = 6 +5 *Beta`

`Beta = 1.55`