Adam invests his savings of $10000 and $ 5000 in which he borrows from a bank at 5% interest in a broad portfolio of stocks that approximates the market portfolio. The market return is estimated to be 12% per annum. Assume borrowing and lending rates are equal.
Calculate her expected return using the CAPM equation.
Return = risk free rate + Beta (Market return - risk free rate)
= 5% + 1 (12% - 5%)
Am i right?