Question

uppose you are the money manager of a $4.53 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 200,000 1.50 B 440,000 (0.50) C 1,340,000 1.25 D 2,550,000 0.75 If the market's required rate of return is 9% 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

The  fund's required rate of return = Risk Free Rate + ( Market's Required Rate of Return - Risk Free Rate ) * Portfolio Beta

=5% + (9% -5%) * 0.809602649006622

= 8.24%

Hence the correct answer is 8.24%

Note :

1. Portfolio Beta :

Investment	Amount ($)	Weight ( Amount / Total Amount)	Beta	Weight * Beta
A	2,00,000	0.04415011	1.5	0.066225165563
B	4,40,000	0.097130243	-0.5	-0.048565121413
C	13,40,000	0.29580574	1.25	0.369757174393
D	25,50,000	0.562913907	0.75	0.422185430464
	45,30,000			0.809602649006622