Questions

You manage an investment portfolio that is made up of 25%, 3 month Treasury Bills. 26% S&P /NZX50 index and 50% shares of Company X. Examination of the data of Company X shows that it has a beta of 1.6. The 3 month Treasury Bills yield a return of 3.5% and the expected return on the S&P/NZX50 index is 7.5%. Assume the market is efficient and the CAPM theory applies.

Using the CAPM, what is the expected return on the shares of Company X?
a) 9.9%
b) 8.5%
c) 11.5%
d) 3.5%
e) 7.5%