From the following information, calculate the expected rate of return of a portfolio: Risk-free rate of return: 10% Expected return on market portfolio: 20% Standard deviation of an asset: 3% Market standard deviation: 2

Calculation of beta co-efficient: Standard deviation (σ s ) = 3% Correlation co-efficient (r m ) = 0.70 Market Standard Deviation (σ m ) = 2.8% Beta Coefficient = (r m × σ s ) ÷ σ m = (0.70 × 3) ÷ 2.8 = 2.1 ÷ 2.8 = 0.75 Given: R m = 20% R f = 10% Expected rate of return: Expected rate of return = R f + β (R m - R f ) = 10% + 0.75 (20 - 10) = 10% + 0.75 (10) = 10% + 7.5% = 17.5%