Suppose you are the money manager of a $4.88 million investment fund. The fund c

Question

Suppose you are the money manager of a $4.88 million investment fund. The fund consists of four stocks with the following investments and betas:

If the market's required rate of return is 13% and the risk-free rate is 7%, 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 $   420,000                                 1.50 B 620,000                                 (0.50) C 1,340,000                                 1.25 D 2,500,000                                 0.75

Explanation / Answer

Portfolio Beta=(sum(amount in asset i*beta of asset i))/total amount in all assets=(420000*1.5+620000*(-0.5)+1340000*1.25+2500000*0.75)/(420000+620000+1340000+2500000)=0.793032787

Required return=risk free rate+beta*(market return-risk free rate)=7%+0.793032787*(13%-7%)=11.7581967%

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