Question

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.

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%