Question
In: Finance
Suppose you are the money manager of a $4.62 million investment fund. The fund consists of...
Suppose you are the money manager of a $4.62 million investment fund. The fund consists of four stocks with the following investments and betas:
| Stock | Investment | Beta | ||
| A | $ 360,000 | 1.50 | ||
| B | 600,000 | (0.50 | ) | |
| C | 960,000 | 1.25 | ||
| D | 2,700,000 | 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.
Solutions
Expert Solution
Ans 9.00%
| Stock | INVESTMENT (i) | Beta (ii) | Investment* Beta (i)* (ii) |
| A | 3,60,000 | 1.50 | 5,40,000.00 |
| B | 6,00,000 | (0.50) | (3,00,000.00) |
| C | 9,60,000 | 1.25 | 12,00,000.00 |
| D | 27,00,000 | 0.75 | 20,25,000.00 |
| Total | 46,20,000 | 34,65,000 | |
| AVERAGE BETA = | (INVESTMENT * BETA) / TOTAL INVESMENT | ||
| 3465000 / 4620000 | |||
| 0.750000000000 | |||
| Required Return = | Risk free Return + (Market Return - Risk free return)* Beta | ||
| Required Return = | 6% + (10% - 6%)*0.7500 | ||
| Required Return = | 9.00% |
jeff jeffy answered 3 years agoRelated Solutions
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