Question

Homework X nment: Module 4 Homework Assigament Score: 20.00% Save Submit Assignment for Grading Problem 8.07 (Portfolie Required Return) ons 4Question 5 of 20 Check My Work (3 remaining) eBook Problem Walk-Through the money manager of a $5.18 million investment fund. The fund consists of four stocks with the following investments and betas: Suppose yo Stock Investment Beta 1.50 A $340,000 600,000 (0.50) 1,340,000 1.25 C D 2,900,000 0.75 O If the market's required rate of return is 11 % and the risk-free rate is 5 %, what is the fund's required rate of return? Do not round intermediate calculations Round your answer to two decimal places. % O O Check My Work (3 remaining) O O 0-tcom Key Question 5 of 20 Problem B.07 (Portfolio Required Return) O O O

Answer 1

Computation of portfolio beta of fund Stock Investment Weight Beta Weight Beta $340,000 0.0656 1.50.098455598 A В $600,000 0.1158 -0.5 -0.057915058 $1,340,000 0.2587 1.250.323359073 C $2,900,000 0.5598 0.75 0.41988417 1 S5.180,000 0.783783784 Portfolio fund beta 0.783783784 Risk free rate , Rf = 5% Market required rate of return , Rm 11% Required return of fund = Rf+ Beta* (Rm Rf 5%0.783783784* (11% - 5%) 5%+0.783783784* 6% 5%4.7027027 % = 9.7027027 % 9.7 % Ans : 9.7%