Question

1.

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

Stock	Dollar investment	Beta
A	$300,000	1.3
B	200,000	1.7
C	400,000	0.85
D	100,000	-0.3
Total investment	$1,000,000

The market's required return is 9% 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.?????

2.

Suppose you are the money manager of a $4.78 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock	Investment	Beta
A	$   460,000	1.50
B	740,000	(0.50)
C	980,000	1.25
D	2,600,000	0.75

If the market's required rate of return is 13% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

1.Portfolio beta=Respective beta*Respective investment weight

=(300,000/1,00,000*1.3)+(200,000/1,00,000*1.7)+(400,000/1,00,000*0.85)+(100,000/1,00,000*-0.3)

=1.04

required return= risk-free rate +Beta*(market rate- risk-free rate )

=3+1.04*(9-3)

=9.24%

2.Portfolio beta=Respective beta*Respective investment weight
=(460,000/4,780,000*1.5)+(740,000/4,780,000*-0.5)+(980,000/4,780,000*1.25)+(2,600,000/4,780,000*0.75)

=0.731171548

required return= risk-free rate +Beta*(market rate- risk-free rate )

=5+0.731171548*(13-5)

=10.85%(Approx).