From the following information, calculate the expected rate of return of a portfolio : Risk-free rate of return 12% p.a. Expected return on market portfolio 20% p.a. Standard deviation of an asset 3% Market standard devi

Calculation of Expected Rate of Return of a Portfolio Expected rate of return of a portfolio can be worked by using following formula: $R_e = R_f + B_j(R_m - R_f)$ Where $R_e$ stands for expected rate of return of a portfolio $R_f$ stands for Risk free rate of interest or return $R_m$ stands for expected return of a portfolio $B_j$ stands for Beta Co-efficient of Security j Where $r_{sm}$ stands for correlation co-efficient of portfolio with market s stands for Standard Deviation of an asset m stands for Market Standard Deviation Beta ($B_j$) = Correlation coefficient * (Standard deviation of asset / Market standard deviation) $B_j = (0.80 \times 0.03) / 0.025 = 0.96$ Now we may get expected rate of return by substituting $R_e = 12 + 0.96(20 - 12) = 12 + 0.96(8) = 12 + 7.68 = \textbf{19.68\%}$