Question
In: Finance
Joel Foster is the portfolio manager of the Go Anywhere Fund, a $3 million hedge fund...
Joel Foster is the portfolio manager of the Go Anywhere Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 8.75% and the risk-free rate is 2.50%. What rate of return should investors expect (and require) on this fund?
|
Stock |
Amount |
Beta |
|
A |
$1,075,000 |
1.20 |
|
B |
675,000 |
1.50 |
|
C |
750,000 |
3.35 |
|
D |
500,000 |
1.10 |
|
$3,000,000 |
Solutions
Expert Solution
The rate of return is computed as shown below:
= risk free rate + beta ( return on market - risk free rate)
beta is computed as follows:
= Beta of Stock A x [ (Investment in Stock A) / (Investment in Stock A + Investment in Stock B + Investment in Stock C + Investment in Stock D) ] + Beta of Stock B x [ (Investment in Stock B) / (Investment in Stock A + Investment in Stock B + Investment in Stock C + Investment in Stock D) ] + Beta of Stock C x [ (Investment in Stock C) / (Investment in Stock A + Investment in Stock B + Investment in Stock C + Investment in Stock D) ] + Beta of Stock D x [ (Investment in Stock D) / (Investment in Stock A + Investment in Stock B + Investment in Stock C + Investment in Stock D) ]
= 1.20 x $ 1,075,000 / $ 3,000,000 + 1.50 x $ 675,000 / $ 3,000,000 + 3.35 x $ 750,000 / $ 3,000,000 + 1.10 x $ 500,000 / $ 3,000,000
= 0.43 + 0.3375 + 0.8375 + 0.18333333
= 1.788333333
So, the rate of return will be as follows:
= 0.025 + 1.788333333 ( 0.0875 - 0.025)
= 13.68% Approximately
Feel free to ask in case of any query relating to this question
jeff jeffy answered 1 year agoRelated Solutions
Joel Foster is the portfolio manager of the Go Anywhere Fund, a $3 million hedge fund...
Joel Foster is the portfolio manager of the Go Anywhere Fund, a
$3 million hedge fund that contains the following stocks. The
required rate of return on the market is 8.75% and the risk-free
rate is 2.50%. What rate of return should investors expect (and
require) on this fund? Enter your answer rounded to two decimal
places. Do not enter % in the answer box. For example, if your
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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
0.75...
Kaiser is the portfolio manager of the SF Fund, a $3 million hedge fund that contains...
Kaiser is 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%.
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
$3,000,000
*Show your formulas and formula inputs.
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?
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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