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Consider the following information and then calculate the required rate of return for the Global Equity...

Consider the following information and then calculate the required rate of return for the Global Equity Fund, which includes 4 stocks in the portfolio. The market's required rate of return is 10.25%, the risk-free rate is 6.45%, and the Fund's assets are as follows: Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. Stock Investment Beta A $215,000 1.25 B $375,000 0.75 C $575,000 –0.45 D $1,055,000 2.18

Expert Solution

required rate of return of a stock = risk free rate+ Beta*(market return- risk free rate)

So required rate of return of a stock A = risk free rate+ Beta*(market return- risk free rate)

=6.45+1.25*(10.25-6.45)

=6.45+1.25*3.8

=11.20%

required rate of return of a stock B = risk free rate+ Beta*(market return- risk free rate)

=6.45+0.75*(10.25-6.45)

=6.45+0.75*3.8

=9.30%

required rate of return of a stock C = risk free rate+ Beta*(market return- risk free rate)

=6.45-0.45*(10.25-6.45)

=6.45-0.45*3.8

=4.74%

required rate of return of a stock D = risk free rate+ Beta*(market return- risk free rate)

=6.45+2.18*(10.25-6.45)

=6.45+2.18*3.8

=14.73%

Weightage of A = 215000/(215000+375000+575000+1055000)

=215000/2220000 =9.69%

Weightage of B = 375000/(215000+375000+575000+1055000)

=375000/2220000 =16.89%

Weightage of C = 575000/(215000+375000+575000+1055000)

=575000/2220000 =25.90%

Weightage of D = 1055000/(215000+375000+575000+1055000)

=1055000/2220000 =47.52%

expected return of portfolio= weight A * expected return of A+weight B * expected return of B+weight C * expected return of C+weight d * expected return of d

=0.0969*11.20+0.1689*9.3+0.2590*4.74+0.4752*14.73

=1.09+1.57+1.23+7.00=10.88%

jeff jeffy answered 2 years ago

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