You have been managing a $5 million portfolio that has a beta of 1.35 and a required rate of return of 13.775%. The current risk-free rate is 5%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 1.05, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places.
%
Using CAPM Model,
0.13775 = 0.05 + 1.35(Rm - 0.05)
Rm = 11.50%
Rf = 5.0%
New Beta = [5,000,000(1.35) + 500,000(1.05)]5,500,000
New Beta = 1.32
Using CAPM Model,
Required Rate = 0.05 + 1.32(0.115 - 0.05)
Required Rate = 13.58%
You have been managing a $5 million portfolio that has a beta of 1.35 and a...
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