What is the expected yield on the market portfolio at a time

What is the expected yield on the market portfolio at a time when Treasury bills yield 6% and a stock with a beta of 1.4 is expected to yield 18%?

Solution

Answer: Calculation of the expected Yield on the market Portffolio:

Expected return = risk - free rate + risk premium

18% = 6% + 1.4 ( Rm - 6%)

18% = 6% + 1.4 Rm - 8.4%

20.4% = 1.4 Rm

14.57% = Rm