Ask Question
2 February, 00:26

Suppose that borrowing is restricted so that the zero-beta version of the CAPM holds. The expected return on the market portfolio is 15%, and on the zero-beta portfolio it is 7%. What is the expected return on a portfolio with a beta of 0.7

+1
Answers (1)
  1. 2 February, 00:43
    0
    Expected return is 12.6%

    Explanation:

    Zero beta portfolio has no systematic risk. A zero beta portfolio has same expected rate of return as risk free rate. It does not effects with market change.

    Using CAPM formula to calculate the expected return

    Expected return = Risk free rate + Beta (Market rate - risk free rate)

    As we know

    Expected return on zero beta portfolio = risk free rate

    Expected return = 7% + 0.7 (15% - 7%)

    Expected return = 7% + 0.7 (8%)

    Expected return = 7% + 5.6%

    Expected return = 12.6%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Suppose that borrowing is restricted so that the zero-beta version of the CAPM holds. The expected return on the market portfolio is 15%, ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers