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Explanation / Answer

The beta of ZBB Energy is 1.28. Beta is used to show the relationship of return on selected stock as compared to market rate of return. If the market rate of return is 10%, it is expected that the return on this stock will be 1.28 times of 10%, it means that expected return will be 12.8% form this stock. If 33% of portfolio has been invested in the ZBB, its contribution will be .33*12.8^ = 4.22%

Rate of return according to CAPM

4.5%+*1.28*6.5% = 12.82%

http://www.nyse.com/about/listed/lcddata.html?ticker=ZBB

Beta of WMT = .31

Expected return = 4.50% +.31 *6.5% = 6.58%

http://www.nyse.com/about/listed/lcddata.html?ticker=WMT

Beta of CostCo = .74

Expected return = 4.50% +.74 *6.5% = 9.31%

http://www.nyse.com/about/listed/lcddata.html?ticker=COST

Portfolio Beta = 1.28+.31+.74/3 = .78

Expected return of portfolio = 4.5% +.78 *6.5 = 9.57%

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