Consider the following information and then calculate the required rate of retur
ID: 2820952 • Letter: C
Question
Consider the following information and then calculate the required rate of return for the Global Equity Fund, which includes 4 stocks in the portfolio. The market's required rate of return is 9.00%, the risk-free rate is 4.55%, and the Fund's assets are as follows:
Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
Stock
Investment
Beta
A
$195,000
1.45
B
$315,000
0.85
C
$535,000
–0.45
D
$1,130,000
2.18
Stock
Investment
Beta
A
$195,000
1.45
B
$315,000
0.85
C
$535,000
–0.45
D
$1,130,000
2.18
Explanation / Answer
Total investment=(195000+315000+535000+1130000)=$2175000
Portfolio beta=Respective beta*Respective investment weights
=(195000/2175000*1.45)+(315000/2175000*0.85)+(535000/2175000*-0.45)+(1130000/2175000*2.18)
=1.275011494
required return= risk-free rate +Beta*(MArket rate- risk-free rate )
=4.55+1.275011494*(9-4.55)
which is equal to
=10.22%(Approx).
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