Return is 11.5 percent and the risk-free rate is 3 percent, what is the appropri

Question

Return is 11.5 percent and the risk-free rate is 3 percent, what is the appropriate required return of MFI (using the CAPM)? (capital asset pricing model) the expected return for the general market s 12.8 percent, and the risk premium in the market is 9.3 percent. Tasaco, LBM, and Exxos have betas of 0.864, 0.693, and 0,575, respectively. What are the corresponding required rates of return for the three securities? (portfolio beta and security market line) you own a portfolio consisting of the stocks below: the risk-free rate is 3 percent. Also, the expected return on the market portfolio is 11 percent. Calculate the expected return of your portfolio. Calculate the portfolio beta. Given the foregoing information, plot the security market line on paper. Plot the stocks from your portfolio on your graph. From your plot in part (c), which stocks appear to be your winners and which ones appear to be your losers? Why should you consider your conclusion in part (d) to be less than certain?

Explanation / Answer

I am solving 6.22

Rm=12.8%

Rm-Rf=9.3%

Rf=12.8%-9.3%=3.5%

CAPM model: Expected return=Rf+Beta*(Rm-Rf)

Tasco: R=3.5%+(0.864*9.3%)=11.54%

LBM: R=3.5%+(0.693*9.3%)=9.94%

Exoss: R=3.5%+(0.575*9.3%)=8.85%

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