Compute stock expected return using capm

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Consider an investment portfolio that consists of four different stocks, with the amount invested in each asset shown below. Assume the risk-free rate is 2% and the market risk premium is 6.5%. Use this information to answer the following questions.

a. Compute each stock's expected return using CAPM (assuming that the stocks are all fairly priced).

b. Compute the portfolio beta (rounded to four decimals) and the expected return on the portfolio.

c. Now consider a two-asset portfolio that includes 60% invested in Sodastream and 40% invested in Pegasus. The yearly-return standard deviation of Sodastream is 75% and the yearly-return standard deviation of Pegasus is 45%. The correlation coefficient between Sodastream's returns and Pegasus's returns is 0.7. What is the yearly-return standard deviation for this portfolio?

Reference no: EM132510042

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