How to use the required rate of return to achieve a good portfolio?

Question

I understand this isn't the the best way to do it but i'm interested in how to do it using formulae. Thanks

Answer 1

This is called 'basket weaving'. You take the betas of the stock in the required rate CAPM formula Ks=krf+beta(km - Krf).
Then beta of your portfolio=beta1xX1+beta2xX2+beta3xX3 and so on till the number of securities are determined by you. Here X1, X2, X3 etc are the proportion of allocation for each security. If you need high return pick up high beta shares, less risky, almost market return betas etc;. I hope the CAPM abbreviations are known since required rate was mentioned in the question.