Question

Suppose you are the money manager of a $4.88 million investment fund. The fund consists of four stocks with the following Investments and betas: Stock Investment Beta $ 280,000 1.50 780,000 (0.50) 1,020,000 2,800,000 0.75 If the market's required rate of return is 12% and the risk-free rate is 6%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places

Answer 1

Fund's required rate of return = risk free rate + ( market's required rate of return - risk free rate of return) * portfolio beta

= 6% + ( 12% -6 %) * 0.697745901639344

= 10.19%

Hence the correct answer is 10.19%

Note:

portfolio beta =

Stock	Investment	Weight (Value / Total)	Beta	Weight *beta
A	280000	0.057377049	1.5	0.086065574
B	780000	0.159836066	-0.5	-0.079918033
C	1020000	0.209016393	1.25	0.261270492
D	2800000	0.573770492	0.75	0.430327869
	4880000			0.697745901639344