Question

David knows that the beta of his portfolio is equal to 1, but he does not know the risk-free rate of return or the market risk premium. He also knows that the expected return on the market is 7.50 percent. What is the expected return on David’s portfolio? (Round answer to 2 decimal places, e.g. 12.25)

Answer 1

7.50%

Step-by-step explanation:

The computation of expected return is shown below:-

Expected return = Risk free rate + beta × (Return on market - Risk free rate)

= Risk free rate + 1 × (7.50% - Risk free rate]

= Risk free rate + 7.50% - Risk free rate

=7.50%

Therefore for computing the expected return we simply applied the above formula.