Question

Suppose you are the money manager of a $4.41 million investment fund. The fund consists of...

Suppose you are the money manager of a $4.41 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock Investment Beta
A $   360,000                                 1.50
B 380,000                                 (0.50)
C 1,220,000                                 1.25
D 2,450,000                                 0.75

If the market's required rate of return is 8% 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.

Homework Answers

Answer #1
Amount weight beta weight*beta
A                   360,000.00 0.0816 1.50 0.1224
B                   380,000.00 0.0862 -0.50 -0.0431
C               1,220,000.00 0.2766 1.25 0.3458
D               2,450,000.00 0.5556 0.75 0.4167

Beta of portfolio = 0.8418

required rate of return = 5% + 0.8418*3% = 7.53%

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