A portfolio consists of the following three assets A, B and C.
(a) Assuming a risk-free rate of 5.85 per cent and an expected return on the market of 13.60 per cent, calculate the expected return on each asset.
(b) Calculate the expected return of the portfolio assuming that 40 per cent of the portfolio weight is allocated to asset B with the remainder of the portfolio being equally divided between asset A and asset C.
Inputs
E(RM)=13.60%
RF=5.85%
ßA=1.20
ßB=1.63
ßC=0.94
wA=0.30
wB=0.40
wC = 0.30