Question
In: Finance
Suppose you are the money manager of a $4.18 million investment fund. The fund consists of...
Suppose you are the money manager of a $4.18 million investment fund. The fund consists of four stocks with the following investments and betas:
| Stock | Investment | Beta |
| A | $ 420,000 | 1.50 |
| B | 400,000 | (0.50) |
| C | 1,460,000 | 1.25 |
| D | 1,900,000 | 0.75 |
If the market's required rate of return is 9% and the risk-free rate is 7%, 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 8.76%
| Stock | INVESTMENT (i) | Beta (ii) | Investment* Beta (i)* (ii) |
| A | 4,20,000 | 1.50 | 6,30,000.00 |
| B | 4,00,000 | (0.50) | (2,00,000.00) |
| C | 14,60,000 | 1.25 | 18,25,000.00 |
| D | 19,00,000 | 0.75 | 14,25,000.00 |
| Total | 41,80,000 | 36,80,000 | |
| AVERAGE BETA = | (INVESTMENT * BETA) / TOTAL INVESMENT | ||
| 3680000 / 4180000 | |||
| 0.880382775 | |||
| Required Return = | Risk free Return + (Market Return - Risk free return)* Beta | ||
| Required Return = | 7% + (9% - 7%)*0.880382775 | ||
| Required Return = | 8.76% |
jeff jeffy answered 3 years agoRelated Solutions
Suppose you are the money manager of a $4.18 million investment fund. The fund consists of...
Suppose you are the money manager of a $4.18 million investment
fund. The fund consists of four stocks with the following
investments and betas:
Stock
Investment
Beta
A
$ 420,000
1.50
B
400,000
(0.50)
C
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1.25
D
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0.75
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rate is 7%, what is the fund's required rate of return? Do not
round intermediate calculations. Round your answer to two decimal
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2. An individual has $20,000...
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