Question

Save Submit Assignment for Grading Question of 10 Check My Work (1 remaining) Problem Walk-Through Problem 8-7 Beta Portfolio required return Suppose you are the money manager of a $3.67 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment $ 300,000 400,000 0.50 1,220,000 1,750,000 If the market's required rate of return is 12% and the risk-free rate is 3%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places 400,000 Check My Work (1 remaining) Save Subm Animert for Grading MacBook Air

Answer 1

Portfolio value=(300000+400000+1220000+1750000)=3670000

Weight of stock A in the investment=300000/3670000=0.081743869

Weight of stock B in the investment=400000/3670000=0.108991826

Weight of stock C in the investment=1220000/3670000=0.332425068

Weight of stock D in the investment=1750000/3670000=0.476839237

Portfolio beta=Summation of (Weight of stock)*(Beta of the stock)

=0.081743869*1.5+0.108991826*(-.5)+0.332425068*1.25+0.476839237*.75
=0.841280653
Portfolio return=Risk free rate +Beta*(Market return-Risk free rate)
Portfolio return=3% +0.841280653*(12%-3%)
=3% +0.075715259
=0.105715259 or 10.57% (Rounded to two decimal places)

Fund's required rate of return is 10.57%