Suppose you are the money manager of a $4.37 million investment fund. The fund c

Question

Suppose you are the money manager of a $4.37 million investment fund. The fund consists of four stocks with the following investments and betas:

If the market's required rate of return is 11% 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.

Stock Investment Beta A $   300,000                                 1.50 B 700,000                                 (0.50) C 1,220,000                                 1.25 D 2,150,000                                 0.75

Explanation / Answer

Portfolio beta=Respective betas*Respective weights

=(300,000/4,370,000*1.5)+(700,000/4,370,000*-0.5)+(1,220,000/4,370,000*1.25)+(2,150,000/4,370,000*0.75)

=0.740846681

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

=3+0.740846681*(11-3)

=8.93%(Approx).

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