Suppose you have invested $30,000 in the following four stocks.
Security Amount Invested Beta
stock A 5,000 0.75
stock B 10,000 1.10
stock C 8,000 1.36
stock D 7,000 1.88
The risk-free rate is 4 percent and the expected return on the market portfolio is 15 percent, what is the expected return on the above portfolio.
Q1. What financial concept or principle is the problem asking to solve.
Q2. In the context of the problem scenario, what are some business decisions that a manager would be able to make after solving the problem.
Q3. Is there any additional information missing from the problem that would enhance the decision-making process?
Q4. Without showing mathemathical calculations, explain in writing how you would solve the problem.