Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10% according to CAPM. What is the beta of a portfolio of 60% MegaChip and 40% Littlewing stock?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10% according to
What is the beta of a portfolio of 60% MegaChip and 40% Littlewing stock?
Step by step
Solved in 2 steps