Portfolio required return Suppose you are the money manager of a $4.03 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 440,000 1.50 B 340,000 - 0.50 C 1,500,000 1.25 D 1,750,000 0.75 If the market's required rate of return is 8% 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 decimal places. %
Portfolio beta=Respective beta*Respective investment weight
=(440,000/4,030,000*1.5)+(340,000/4,030,000*-0.5)+(1,500,000/4,030,000*1.25)+(1,750,000/4,030,000*0.75)
=0.912531017
required return=risk-free rate +Beta*(market rate- risk-free rate)
=4+(8-4)*0.912531017
=7.65%(Approx).
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