Question
In: Finance
Suppose you are the money manager of a $4.66 million investment fund. The fund consists of...
Suppose you are the money manager of a $4.66 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 240,000 1.50 B 520,000 (0.50) C 900,000 1.25 D 3,000,000 0.75 If the market's required rate of return is 12% and the risk-free rate is 3%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.
Solutions
Expert Solution
Portfolio = 4660000
Portfolio beta = Weight of stock A * Beta of stock A + Weight of stock B * Beta of stock B + Weight of stock C * Beta of stock C + Weight of stock D * Beta of stock D
= (240000/4660000) * 1.50 + (520000/4660000) * -0.50 + (900000/4660000) * 1.25 + (3000000/4660000) * 0.75
= 0.08 - 0.06 + 0.24 + 0.48
= 0.75
Required rate of return = Risk free rate + Portfolio beta * (Market return - Risk free rate)
= 3% + 0.75 * (12% - 3%)
= 9.75%
jeff jeffy answered 2 years agoRelated Solutions
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