Question

You are holding a portfolio with the following investments and betas:

Stock	Dollar investment		Beta
A	$200,000		1.35
B	200,000		1.60
C	400,000		0.85
D	200,000		-0.20
Total investment	$1,000,000

The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places.

Answer 1

Ans 10.230%

Stock	INVESTMENT (i)	Beta (ii)	Investment* Beta (i)* (ii)
A	2,00,000	1.35	2,70,000.00
B	2,00,000	1.60	3,20,000.00
C	4,00,000	0.85	3,40,000.00
D	2,00,000	(0.20)	(40,000.00)
Total	10,00,000		8,90,000
AVERAGE BETA =	(INVESTMENT * BETA) / TOTAL INVESMENT
	890000 / 1000000
	0.89
Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
Required Return =	4% + (11% - 4%)*0.89
Required Return =	10.230%