Suppose you are the money manager of a $4.16 million investment fund. The fund consists of four stocks with the following investments and betas:
Stock | Investment | Beta |
A | $ 440,000 | 1.50 |
B | 440,000 | (0.50) |
C | 980,000 | 1.25 |
D | 2,300,000 | 0.75 |
If the market's required rate of return is 11% and the risk-free rate is 4%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.
Portfolio beta=Respective beta*Respective weight
=(440,000/4,160,000*1.5)+(440,000/4,160,000*-0.5)+(980,000/4,160,000*1.25)+(2,300,000/4,160,000*0.75)
=0.814903847
Required return=risk free rate+beta*(market rate-risk free rate)
=4+0.814903847*(11-4)
=9.70%(Approx).
Suppose you are the money manager of a $4.16 million investment fund. The fund consists of...
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