Suppose you manage a $3,260,000 fund that consists of four stocks with the follo
ID: 2817572 • Letter: S
Question
Suppose you manage a $3,260,000 fund that consists of four stocks with the following investments:
Stock
Investment
Beta
A
$150,100
1.65
B
$316,600
–0.78
C
$858,350
2.95
D
$1,934,950
0.37
If the market's required rate of return is 10.55% and the risk-free rate is 5.00%, what is the fund's required rate of return?
Work with four decimal places and round your final answer to two decimal places.
Stock
Investment
Beta
A
$150,100
1.65
B
$316,600
–0.78
C
$858,350
2.95
D
$1,934,950
0.37
If the market's required rate of return is 10.55% and the risk-free rate is 5.00%, what is the fund's required rate of return?
Work with four decimal places and round your final answer to two decimal places.
Explanation / Answer
The fund's required rate of return = Risk free rate + ( Market Return - Risk free rate) * Portfolio Beta
= 5% + ( 10.55% - 5%) * 0.9961
= 10.53%
Hence the correct answer is 10.53%
Note:
Stock Investment Weight ( Investment / Total) Beta Weight * Beta A 150100 0.046042945 1.64 0.075510429 B 316600 0.097116564 -0.78 -0.07575092 C 858350 0.263297546 2.95 0.776727761 D 1934950 0.593542945 0.37 0.21961089 3260000 Portfolio Beta 0.9961Related Questions
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