PORTFOLIO REQUIRED RETURN Suppose you are the money manager of a $4.78 million investment fund. The...

PORTFOLIO REQUIRED RETURN

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	$ 500,000	1.50
B	420,000	(0.50)
C	1,460,000	1.25
D	2,400,000	0.75

If the market's required rate of return is 10% and the risk-free rate is 6%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

Expert Solution

Ans 9.49%

Stock	INVESTMENT (i)	Beta (ii)	Investment* Beta (i)* (ii)
A	5,00,000	1.50	7,50,000.00
B	4,20,000	(0.50)	(2,10,000.00)
C	14,60,000	1.25	18,25,000.00
C	24,00,000	0.75	18,00,000.00
Total	47,80,000		41,65,000.00


AVERAGE BETA =	(INVESTMENT * BETA) / TOTAL INVESMENT
	4165000 / 4780000
	0.871338912

Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
Required Return =	6% + (10% - 6%)*0.871338912
Required Return =	9.49%

jeff jeffy answered 10 months ago

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