Suppose you are the money manager of a $4.46 million investment fund. The fund c

Question

Suppose you are the money manager of a $4.46 million investment fund. The fund consists of 4 stocks with the following investments and betas:

If the market's required rate of return is 8% and the risk-free rate is 7%, what is the fund's required rate of return? Round your answer to two decimal places.
%

Stock Investment Beta A $   360,000                                 1.50 B 680,000                                 - 0.50 C 1,420,000                                 1.25 D 2,000,000                                 0.75

Explanation / Answer

Solution:

Required Rate of return = Risk free return + Beta *   (Market required return - Risk free return ) A Risk free return 7% Market required return 8% Beta 1.5 Required return of investment 8.50% B Risk free return 7% Market required return 8% Beta -0.5 Required return of investment 6.50% C Risk free return 7% Market required return 8% Beta 1.25 Required return of investment 8.25% D Risk free return 7% Market required return 8% Beta 0.75 Required return of investment 7.75%

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