J.R. has a three stock portfolio. Details of the portfolio are provided in the table. If the T-bill rate is 5 and the market risk premium is 5.5. According to the CAPM, what is the expected return of J.R.
's portfolio?
Stock Investment Beta
Motherlode Mines 30,000 1.6
Lewd Lemons 40,000 1.0
Bonanza Beef 30,000 0.8
A) 5.50
B) 6.16
C) 10.00
D) 10.50
E) 11.16
Question 2
If you were required to estimate the average return for one category of securities for the coming year, history tells us that you should have the greatest degree of confidence estimating which of the following?
A) Long-term government bonds
B) 3-month U.S. Treasury bills
C) Small-company stocks
D) Large-company stocks
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