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Determine the equation for the security market line

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Question - The investment portfolio of Mapeni Limited consists of shares in five companies operating in different industries.

Company

Amount Invested (Sh. million)

Stock beta Coefficient

A Ltd.

B Ltd.

C Ltd.

D Ltd.

E Ltd.

160

120

80

80

60

0.5

2.0

4.0

1.0

3.0

The risk free rate (Rf) is 8%. The market returns have the following probability distribution for the next period.

Market return %

Probability

10

12

13

16

17

0.1

0.2

0.4

0.2

0.1

Required:

Compute the expected return from the market (Rm).

Calculate the beta coefficient for the portfolio (βp).

Determine the equation for the security market line.

Reference no: EM132099671

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