Question

Problem 6-10
Portfolio Required Return

Suppose you manage a $5.375 million fund that consists of four stocks with the following investments:

Stock	Investment		Beta
A	$480,000		1.50
B	675,000		-0.50
C	1,420,000		1.25
D	2,800,000		0.75

If the market's required rate of return is 8% and the risk-free rate is 6%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

		Weight	Beta	Weigh*Beta
A	$480,000	8.93%	1.5	0.13
B	675000	12.56%	-0.5	-0.06
C	1420000	26.42%	1.25	0.33
D	2800000	52.09%	0.75	0.39
	5375000	BETA of Portfolio		0.79

Fund's required rate of return =rf+beta*( market's required rate - rf)

=6%+.79*(8%-6%)

=7.58%