Question

CENGAGE MINDTAP Search this course Module 5 Homework Back to Assignment Attempts: Keep the Highest: 7. Problem 8.07 (Portfolio Required Return) eBook Problem Walk-Through Suppose you are the money manager of a $4.92 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment $ 460,000 600,000 1,560,000 2,300,000 Beta 1.50 (0.50) 1.25 0.75 . If the market's required rate of return is 12% 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. Grade i Now S ave * 3/30/2

Answer 1

Ans 10.78%

Stock INVESTMENT (0) 4,60,000 6,00,000 15,60,000 23,00,000 49,20,000 Beta (ii) Investment Beta (i)* (ii) 1.50 6,90,000.00 (0.50) (3,00,000.00) 1.25 19,50,000.00 0.75 17,25,000.00 40,65,000.00 Total AVERAGE BETA = (INVESTMENT * BETA) / TOTAL INVESMENT 4065000 / 4920000 0.8262195121951 Required Return = Required Return = Required Return = Risk free Return + Market Return - Risk free return) Beta 5% +(12% - 5%)* 0.8262195121951 10.78%

Required Return = Risk free Return + (Market Return - Risk free return)* Beta