Question

Suppose you are the money manager of a $5.06 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock	Investment	Beta
A	$580,000	1.50
B	$800,000	(0.50)
C	$1,280,000	1.25
D	$2,400,000	0.75

If the market's required rate of return is 9% 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

So, Beta of the portfolio = 0.764822

Risk free rate = 4%

Market's required rate of return = 9%

Required rate of return = Risk free rate + [Beta* (Market required rate of return - Risk free rate)]

Required rate of return = 4% + [0.764822 * (9% - 4%)]

Required rate of return = 7.824% or

Required rate of return = 7.82%