You are given the following information about a portfolio consisting of stocks X, Y, and Z: Stock Investment Expected Return 10,000 8% Y 15,000 12% 25,000 16% Calculate the expected return of the portfolio.

You are given the following information about a portfolio consisting of stocks X, Y, and Z: Stock Investment Expected Return 10,000 8% Y 15,000 12% 25,000 16% Calculate the expected return of the portfolio.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 15MC

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Concept explainers

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.

Question

You are given the following information about a portfolio consisting of stocks X,
Y, and Z:
Stock
Investment Expected Return
X
10,000
8%
Y
15,000
12%
25,000
16%
Calculate the expected return of the portfolio.

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