Calculate the expected rate of return on the entire

Solution

Here the CAPM model is used to estimate the return of the portfolio. Return of portfolio = Risk free rate + Portfolio Beta (Market return – Risk free rate) First we need to calculate the portfolio beta as weighted average: Now calculating return of portfolio = Risk free rate + Portfolio Beta (Market return – Risk free rate)                                          = 6% + 0.84 (15%-6%)                                          = 13.56%