Question: You are considering putting together a portfolio that would consist of 25% OPM stock, 30% PMO stock, and 45% MPO stock. The betas of each of the stocks are listed below:
Stock Beta
OPM 0.8
PMO 1.1
MPO 1.9
The market risk premium is 6.5% (the market risk premium is the difference between the return on the market and the risk free rate of return). The expected return on the market is 10%. According to the capital asset pricing model (CAPM), what is the expected return on your portfolio?
You will need to first calculate the beta of your portfolio.