Question
In: Finance
Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund...
Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 5.00%.
|
Stock |
Amount |
Beta |
|
A |
$1,075,000 |
1.20 |
|
B |
675,000 |
0.50 |
|
C |
750,000 |
1.40 |
|
D |
500,000 |
0.75 |
|
$3,000,000 |
Based on the CAPM wat rate of return should investors require on this fund?
Solutions
Expert Solution
| Ra = Rrf + ( B a X ( R m - Rrf) | ||||||||||
| Ra = Expected return on a security | ||||||||||
| Rrf = Risk-free rate | ||||||||||
| Ba = Beta of the security | ||||||||||
| Rm = Expected return on market | ||||||||||
| Note: Risk Premium = (Rm – Rrf) | ||||||||||
| Stock | Rrf % | "+" | "( | Beta | "X" | Rm | "-" | Rrf | )" | |
| A | 5% | "+" | "( | 1.20 | "X" | 11% | "-" | 5% | )" | |
| B | 5% | "+" | "( | 0.50 | "X" | 11% | "-" | 5% | )" | |
| C | 5% | "+" | "( | 1.40 | "X" | 11% | "-" | 5% | )" | |
| D | 5% | "+" | "( | 0.75 | "X" | 11% | "-" | 5% | )" | |
| Stock | Rrf % | "+" | "( | Beta | "X" | Rm - Rrf | )" | |||
| A | 5% | "+" | "( | 1.20 | "X" | 6% | )" | |||
| B | 5% | "+" | "( | 0.50 | "X" | 6% | )" | |||
| C | 5% | "+" | "( | 1.40 | "X" | 6% | )" | |||
| D | 5% | "+" | "( | 0.75 | "X" | 6% | )" | |||
| Stock | Rrf % | "+" | Beta X Rm - Rrf | |||||||
| A | 5% | "+" | 7.2% | |||||||
| B | 5% | "+" | 3.0% | |||||||
| C | 5% | "+" | 8.4% | |||||||
| D | 5% | "+" | 4.5% | |||||||
| Stock | Ra = | |||||||||
| A | 12.2% | |||||||||
| B | 8.0% | |||||||||
| C | 13.4% | |||||||||
| D | 9.5% | |||||||||
jeff jeffy answered 1 year agoRelated Solutions
1. Assume that you are the portfolio manager of the SF Fund, a $3 million hedge...
1. Assume that you are the portfolio manager of the SF Fund, a
$3 million hedge fund that contains the following stocks. The
required rate of return on the market is 12.00% and the risk-free
rate is 4.00%. What rate of return should investors expect (and
require) on this fund?
Stock Amount Beta
A $1,075,000 1.20
B 675,000 0.50
C 750,000 1.40
D 500,000 0.75
Total $3,000,000
A.10.56%
B.10.83%
C.11.11%
D.11.38%
E.12.14%
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What rate of return should investors expect (and require) on this
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Stock
Amount
Beta
A
$1,075,000
1.20
B
675,000
0.50
C
750,000
1.40
D
500,000
0.75
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What rate of return should investors expect (and
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*****Please show work on EXCEL spreadsheet, please show
EXCEL formulas****please do not answer unless you use
excel
STOCK
AMOUNT
BETA
A
$1,075,000
1.20
B
675,000
0.50
C
750,000
1.40
D
500,000
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