Suppose you are the money manager of a $4.44 million investment fund. The fund c

Question

Suppose you are the money manager of a $4.44 million investment fund. The fund consists of four stocks with the following investments and betas:

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.

Stock Investment Beta A $   360,000                                 1.50 B 420,000                                 (0.50) C 1,060,000                                 1.25 D 2,600,000                                 0.75

Explanation / Answer

Portfolio beta=Respective betas*Respective weights

=(360000/4,440,000*1.5)+(420000/4,440,000*-0.5)+(1,060,000/4,440,000*1.25)+(2,600,000/4,440,000*0.75)

=0.811936936

required return= risk-free rate +Beta*(MArket rate- risk-free rate )

=6+0.811936936*(8-6)

which is equal to

=7.62%(Approx).

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