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Trinidad Mccole has a portfolio of 3 stocks
Trinidad Mccole has a portfolio of 3 stocks. Xhe currently has 10.70% of ihr portfolio invested in (Starbucks Corp.) in the Restaurants sector, 14.70% in (Northrop Grumman Corp.) in the Aerospace & Defense sector, 74.60% in (Best Buy Co. Inc.) in the Computer & Electronics Retail sector. They have betas of 0.89, 0.00, 2.38 respectively, given that the market is expected to return 15.00% and the yield on a 10-year treasury is 1.30%—what is the expected return on the portfolio?
Expert Solution
Beta of the portfolio = [0.1070 * 0.89] + [0.1470 * 0] + [0.7460 * 2.38]
Beta of the portfolio = 1.87071
Expected return on the portfolio = Risk free rate + [Beta * (Market return - Risk free rate)]
Expected return on the portfolio = 1.30% + [1.87071 * (15% - 1.30%)]
Expected return on the portfolio = 1.30% + 25.6287%
Expected return on the portfolio = 26.9287% or
Expected return on the portfolio = 26.93%
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