Question

eBook Problem Walk-Through Suppose you are the money manager of a $3.62 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta $ 360,000 1.50 B 600,000 (0.50 ) 960,000 1.25 1,700,000 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 deci

Answer 1

Portfolio beta=Respective beta*Respective weight

=(360,000/3,620,000*1.5)+(600,000/3,620,000*-0.5)+(960,000/3,620,000*1.25)+(1,700,000/3,620,000*0.75)

=0.75

Required return=risk free rate+beta*(market rate-risk free rate)

=4+0.75*(11-4)

=9.25%