1. Enter the name and Beta for stocks in your portfolio (max 5)
2. Market return (rm) – Your input of market rate of return, rm, can be based on past returns or projected future returns. Economist Peter Bernstein famously calculated that over the last 200 years, the stock market has returned an average of 9.6% per year. So use this as the systemic risk rate (rm).
3. Risk-free return (rrf): U.S. Treasury bills and bonds are most often used as the proxy for the risk-free rate. Most analysts try to match the duration of the bond with the projection horizon of the investment. To estimate your Stock portfolio’s required rate of return over a 10 year time horizon, you'll want to use the 10-year U.S. Treasury bond rate as your measure of rrf. It is currently 2.42%
4. Calculate the expected return for 5 stock positions you hold r= rf + B(rm-rf)
5. Determine the stocks that should remain as part of your efficient portfolio.
6. Share the result with the class and submit the results in an excel sheet.