Question

2. Quantitative Problem: You are holding a portfolio with the following investments and betas:

Stock	Dollar investment	Beta
A	$200,000	1.3
B	100,000	1.7
C	300,000	0.7
D	400,000	-0.35
Total investment	$1,000,000

The market's required return is 10% and the risk-free rate is 3%. What is the portfolio's required return? Round your answer to 3 decimal places. Do not round intermediate calculations.
___%

7. Suppose you are the money manager of a $4.55 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock	Investment	Beta
A	$   500,000	1.50
B	540,000	(0.50)
C	1,460,000	1.25
D	2,050,000	0.75

If the market's required rate of return is 10% and the risk-free rate is 4%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

____%

Answer 1

2.Portfolio beta=Respective beta*Respective weight

=(200,000/1,000,000*1.3)+(100,000/1,000,000*1.7)+(300,000/1,000,000*0.7)+(400,000/1,000,000*-0.35)

=0.5

Required return=risk free rate+beta*(market rate-risk free rate)

=3+0.5*(10-3)

=6.5%

7.Portfolio beta=Respective beta*Respective weight

=(500,000/4,550,000*1.5)+(540,000/4,550,000*-0.5)+(1,460,000/4,550,000*1.25)+(2,050,000/4,550,000*0.75)

=0.844505494

Required return=risk free rate+beta*(market rate-risk free rate)

=4+0.844505494*(10-4)

=9.07%(Approx)