Question

**CAPM AND PORTFOLIO RETURN**

You have been managing a $5 million portfolio that has a beta of 2.00 and a required rate of return of 10%. The current risk-free rate is 3.50%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 1.90, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer #1

As per CAPM |

expected return = risk-free rate + beta * (expected return on the market - risk-free rate) |

10 = 3.5 + 2 * (Market return% - 3.5) |

Market return% = 6.75 |

new beta = old beta*weight of portfolio invested in old asset+new asset beta*weight of portfolio invested in new asset

= 2*5000000/(5500000)+1.9*500000/(5500000)

=1.9909

As per CAPM |

expected return = risk-free rate + beta * (expected return on the market - risk-free rate) |

Expected return% = 3.5 + 1.9909 * (6.75 - 3.5) |

Expected return% = 9.97 |

CAPM and portfolio return
You have been managing a $5 million portfolio that has a beta of
1.50 and a required rate of return of 16%. The current risk-free
rate is 6.50%. Assume that you receive another $500,000. If you
invest the money in a stock with a beta of 1.75, what will be the
required return on your $5.5 million portfolio? Do not round
intermediate calculations. Round your answer to two decimal
places.

Problem 8-16
CAPM and portfolio return
You have been managing a $5 million portfolio that has a beta of
1.15 and a required rate of return of 11%. The current risk-free
rate is 4.75%. Assume that you receive another $500,000. If you
invest the money in a stock with a beta of 1.30, what will be the
required return on your $5.5 million portfolio? Do not round
intermediate calculations. Round your answer to two decimal
places.
%

You have been managing a $5 million portfolio that has a beta of
0.95 and a required rate of return of 12.125%. The current
risk-free rate is 5%. Assume that you receive another $500,000. If
you invest the money in a stock with a beta of 1.25, what will be
the required return on your $5.5 million portfolio? Do not round
intermediate calculations. Round your answer to two decimal
places.

You have been managing a $5 million portfolio that has a beta of
0.95 and a required rate of return of 11.175%. The current
risk-free rate is 5%. Assume that you receive another $500,000. If
you invest the money in a stock with a beta of 1.25, what will be
the required return on your $5.5 million portfolio? Do not round
intermediate calculations. Round your answer to two decimal
places.

You have been managing a $5 million portfolio that has a beta of
1.15 and a required rate of return of 10%. The current risk-free
rate is 6.50%. Assume that you receive another $500,000. If you
invest the money in a stock with a beta of 1.15, what will be the
required return on your $5.5 million portfolio? Do not round
intermediate calculations. Round your answer to two decimal
places.

You have been managing a $5 million portfolio that has a beta of
1.25 and a required rate of return of 14.625%. The current
risk-free rate is 4%. Assume that you receive another $500,000. If
you invest the money in a stock with a beta of 1.45, what will be
the required return on your $5.5 million portfolio? Do not round
intermediate calculations. Round your answer to two decimal
places.
%

You have been managing a $5 million portfolio that has a beta of
0.85 and a required rate of return of 6.825%. The current risk-free
rate is 3%. Assume that you receive another $500,000. If you invest
the money in a stock with a beta of 1.15, what will be the required
return on your $5.5 million portfolio? Do not round intermediate
calculations. Round your answer to two decimal places.

You have been managing a $5 million portfolio that has a beta of
1.55 and a required rate of return of 10%. The current risk-free
rate is 7.25%. Assume that you receive another $500,000. If you
invest the money in a stock with a beta of 0.85, what will be the
required return on your $5.5 million portfolio? Do not round
intermediate calculations. Round your answer to two decimal places.
%

You have been managing a $5 million portfolio that has a beta of
1.15 and a required rate of return of 8.025%. The current risk-free
rate is 4%. Assume that you receive another $500,000. If you invest
the money in a stock with a beta of 0.95, what will be the required
return on your $5.5 million portfolio? Do not round intermediate
calculations. Round your answer to two decimal places.

You have been managing a $5 million portfolio that has a beta of
1.05 and a required rate of return of 8.675%. The current risk-free
rate is 5%. Assume that you receive another $500,000. If you invest
the money in a stock with a beta of 1.35, what will be the required
return on your $5.5 million portfolio? Do not round intermediate
calculations. Round your answer to two decimal places.

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