n NISM Certifications
XXI NISM Series XXI-A
Medium

An investor has invested in two securities X and Y. The betas of X and Y are 0.9 and 1.2, and their weights are 1/4 and 3/4 respectively. The risk-free rate is 9%, and the market risk premium is 12%. Calculate the expected return of this portfolio using CAPM.

Practice question from NISM XXI A for PMS - Mock Test 6 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    21%

  2. B

    19%

  3. C

    21.5%

  4. 22.5%

    Correct answer

Why this is the answer

Weighted beta = (0.9 * 0.25) + (1.2 * 0.75) = 0.225 + 0.9 = 1.125, Expected Return = 9% + (1.125 * 12%) = 9% + 13.5% = 22.5%

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